Put your hard-earned savings only in ultra-safe GICs -- and rest assured that you are earning returns on par with those in the stock market. Don't listen to conventional advice that it's never too early to start saving for retirement -- wait till you are over 50 to start your RRSP.
That's the word from chartered accountant David Trahair, who has written books on personal finance such as Enough Bull: How to Retire Well Without the Stock Market, Mutual Funds, or Even an Investment Advisor and Smoke and Mirrors: Financial Myths That Will Ruin Your Retirement Dreams.
Mr. Trahair took part in an online discussion. Thanks to everyone who submitted questions.
Mr. Trahair has given talks and taught courses for the Institute of Chartered Accountants of Ontario, the Certified Management Accountants of Ontario, the Human Resources Professional Association of Ontario (HRPAO), the Purchasing Manager's Association of Canada, several provincial government small business associations, a consortium of C.A. firms and university classes.
He was born in Toronto and grew up in Oakville, Ontario. He received his undergraduate degree - a Bachelor of Science and Business from the University of Waterloo - in 1981. He received his C.A. designation in 1985 while working for the firm of Clarkson Gordon (now Ernst & Young). Mr. Trahair is a board member of the Credit Canada, a registered charity dedicated to providing consumer-oriented credit counselling services to families and individuals.
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Claire Neary, Reportonbusiness.com: Thanks very much for joining us, David. To start off, I'd like to know, what pushed you to write this book and offer such contrarian advice? What kind of response have you been getting to your ideas?
David Trahair: I simply got tired of hearing from people who have suffered financially because they followed "traditional" retirement planning advice. For example, many people seem to have tried to get ahead financially by making RRSP contributions each and every year no matter what - even if they were in credit card debt.
They often compounded the problem by believing that they had to invest in the stock market to make the illusive 8-10% a year return to build their retirement savings quickly. Many have been devastated as a result - especially many seniors that have little time to make up for their losses. I wanted to write a simple book that would show people how to retire with as little risk as possible.
The response so far has been very positive. I think people appreciate hearing simple advice from someone who isn't trying to sell them a financial product.
Andrew: As an experienced financial advisor, your idea seems entirely implausible. What are your assumptions for inflation, nominal returns, annual investment amount (starting from age 50), and withdrawals per year?
"Put your hard-earned savings only in ultra-safe GICs -- and rest assured that you are earning returns on par with those in the stock market." How do you justify that statement? All available data CLEARLY shows that this is an absolute fallacy, and that stocks will return many times the return of fixed income investments over any viable investment timeframe.
David Trahair: Thanks Andrew - I get this comment a lot! Here are the statistics as I have calculated them for the S&P/TSX Composite Index and the S&P/TSX Composite Total Return Index (that includes reinvested dividends and income trust distributions). I have calculated them to August 31, 2009. I also have shown what GICs did.
Average Annual Rates of Return:
S&P/TSX Composite Index