The ideal perspective on saving for retirement would come from someone who:
- Doesn’t sell investment products
- Has seen decades’ worth of trends, fads and economic cycles;
- Combines common sense, plain language and sharp analysis that often challenges the conventional wisdom.
Actuary Malcolm Hamilton is exactly this person, but at age 61 he’s heading into retirement later this year. What have his 32 years of experience taught him about life after leaving the workforce? Find out in this edited transcript of a conversation we had on topics ranging from whether Canadians are saving enough to the federal government’s plans to change Old Age Security.
Q: There’s an assumption in almost everything written about retirement that people aren’t saving enough. How true is that?
A: It hasn’t been true historically. During my entire working lifetime, I don’t think there was ever a time where Canadians were thought to be saving enough. And yet, during my entire working lifetime, there never seems to have been a time where Canadians had trouble retiring. But past is no guarantee of the future.
Q: Looking ahead, what will the retirement savings challenge be?
A: Frankly, there are legitimate reasons for concern going forward that Canadians won’t be as lucky with housing as they have been in the past, and they probably will not be as lucky with government policy. The aging population is going to constrain what governments can do. And, given where interest rates are, they’re not likely to be as lucky with rates as we have been in the past.
Q: If people have done OK for themselves in retirement, why are we perpetually being warned that savings levels aren’t good enough?
A: There are large numbers of people and institutions who profit if people save for retirement. I don’t blame them – that’s what they’re supposed to do, and they’re very good at it. But having said that, they never seem to succeed because they’re always dissatisfied with how much people are saving.
Q: Let’s talk about government’s role in providing retirement income. With Ottawa planning to make changes to OAS, how worried should people be that government austerity will cut into their retirement benefits?
A: I don’t think the Canada Pension Plan is something that people need to be worried about in the foreseeable future, by virtue of the fact that it’s contributory and by virtue of the fact that we get triennial reports saying it’s OK. With OAS, we’ll see to what extent those benefits are at risk. I don’t think a change is required, but the government seems inclined to do it in any event.
Q: What about public sector pension benefits. Do you see changes ahead?
A: I would think at some point there will be a reform of public sector pensions. Those plans are very expensive and the cost is, as a rule, is not fully reflected in employee compensation. So taxpayers are really paying more there than they should be. I don’t know how long it’s going to take before taxpayers to notice that, though.
Q: What’s the best way for the average person to figure out how much he or she needs for retirement?
A: I think people should be saving what it makes sense for them to save, as long as that allows them to retire some time before the age of 70. It makes more sense for the variable to be retirement age than retirement saving. Live frugally, don’t squander your money, spend as you need to on your family and yourself to have a good life, and save what you can. Then, ask yourself from time to time, at what age will I be able to afford to retire?
Q: RRSP contributions are an example of the kind of cost you don’t have once you’re retired. Do retirees typically spend less than working people?
A: Way less. Families have two really high expenses during their working lives that they don’t have in retirement. One is paying for things that they’ll acquire in their working lives like houses. The second thing is children.
Q: Where did the idea come from that retirement was a time to live an extravagant lifestyle?
A: I think back to Freedom 55, which tended to reposition retirement in people’s minds. It took retirement at 65 and pushed it back to 55, but the image that went with it was living on tropical islands, not living in Canada shovelling snow. In the real world, people need to make a distinction between a maintenance standard of living, which is the standard of living you need to live comfortably each and every year from 65 through to death, and having a bunch of things that you always wanted to do but never had time to do in your working life. I think those things should be budgeted for separately.
