Canada's chartered professional accountants are so worried people aren't saving enough for retirement that they've published a kind of first-aid book for late starters.
The book is called The Procrastinator's Guide to Retirement: How You Can Retire in 10 Years or Less (CPA Canada). It was written by David Trahair, author of several personal-finance books on the theme of drawing out simple truths to help people understand and manage money. His message in his new book is that even in your 50s, you can still achieve a comfortable retirement.
Here's an edited transcript of a conversation I had recently with Mr. Trahair.
We've seen quite a few reports on how ready we are for retirement and the results are all over the place. Is it fair to say that in deciding to write this book, you believe that a lot of people are unprepared?
Oh, definitely. I would hazard a guess that the majority are nowhere near prepared.
We have a financial industry and a personal-finance commentariat that talks endlessly about saving for retirement. What's your theory on why some people aren't doing enough?
Life is expensive. In our 20s, 30s and 40s, we tend to do things like get married, buy a house, have kids. There's so much demand for our cash that in the early years, there's no money left over. While it's a good idea to start saving early, life gets in the way.
What do you say to convert someone into a doer in the years preceding retirement instead of a procrastinator?
I hesitate to use a scare tactic, but if they don't get their act together during this 10-year period, they are going to have a depressing retirement.
What's the single most important thing to do in the 10 years before retirement?
It's tracking your current spending to see where your money is going. The opportunity is in trying to diligently reduce your expenses as soon as possible during the 10-year period.
A lot of people are obsessed with paying down their mortgage these days rather than saving for retirement. Are they doing themselves any good from a retirement savings point of view?
You can't lose with either option. You can lose if you don't recognize the opportunity to do something productive with your extra money and just spend it.
TFSAs or RRSPs for the procrastinating retirement investors?
When it comes to retirement savings, it's tough to beat an RRSP. They work brilliantly in the traditional situation where you have a high tax rate when you're making the contribution and a low tax rate when you're withdrawing the money later on. TFSAs work when your income is going in the opposite direction.
How realistic is it to address a shortfall in retirement saving by working longer?
If you can delay retirement one year, it can make a huge difference. It's one more year you're making an income and one more year you're making an RRSP contribution. It's one less year that you have to finance in retirement, and one more year you can let your RRSP grow before you start depleting it.
What do you think about reverse mortgages as a safety net for people who didn't safe enough for retirement?
The last option. They're expensive to set up, and the interest rates are higher than traditional mortgages. If you have a half-decent credit rating, apply for a home-equity line of credit before you retire. Have that credit line ready and in place, but don't use it unless it's a last resort.
Do people in Vancouver and Toronto have it made for retirement because of how much their houses have soared in value?
Yes, if they're willing to sell the house and the housing market doesn't "adjust." Selling is a big sticking point for many people.
What about inheritances – will they be a big problem-solver for retirement procrastinators?
A lot of people are planning on inheritances being a lifesaver. But parents are living longer and eating into their assets, so there's less and less left.
The Procrastinator's Guide to Retirement costs $19.99 and is available online through the website of Chartered Professional Accounts of Canada at cpastore.ca.