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Actuary Fred Vettese initially planned to update and broaden his message in the just-released second edition of his book, Retirement Income for Life: Getting More Without Saving More. The arrival of the pandemic late last winter gave him the opportunity to do something even more valuable. Mr. Vettese is among the first to produce a book on retirement planning that considers the pandemic’s effect on financial markets and the economy. Here’s an edited transcript of a Q&A I did with Mr. Vettese about some of the ways retirement planning has changed as a result of COVID:

Can you start us off with a piece of advice for retirees that comes out of the pandemic and its impact on financial markets?

Work out how much money you need to maintain the lifestyle you’ve got. If you have enough assets now and you can live with a less risky portfolio to achieve your lifestyle, then do it. That’s a message I’m now making more clearly for people who are 65 and older. As opposed to saying, ‘you know what, maybe I can squeeze out a few more bucks of income if I take a risk.’

Interest rates are expected to stay low for years – how does that affect retirees?

My best estimate is that the return on bonds over the next 20 to 30 years is going to be negative in real terms – after inflation. So we can’t say that we’ll put some money in bonds and it will stabilize the overall portfolio and we’ll still get a pretty good return. COVID has pretty much squeezed out any kind of risk-free income.

What you need to know about managing your finances during the pandemic

What does this mean to retirees who rely on guaranteed investment certificates or bonds for the bulk of their retirement investments?

If you’re going to keep risk-free investments in your portfolio like bonds and GICs, then you’re going to have to find a rational way to actually start to draw down the principal over your lifetime. You can’t live off of interest income from bonds or GICs.

What do you say to the retirees who see high dividend yields as the answer to low bond and GIC rates?

That sounds totally rational, and it might actually work out. But I always hear alarm bells go off when everyone gets the same idea. Implicit in holding dividend stocks is the idea that those stocks are not going to suffer capital losses, that they’re not going to go down 20 or 30 per cent. And what if these companies start struggling and can’t keep up their earnings and have to cut their dividends? There’s a lot of risk in dividend stocks, even if we haven’t seen that risk showing its teeth yet.

When you look at the 10 years to come, what average annual return do you see for diversified portfolios that are suitable for seniors?

I think people should be looking at returns of between 4 and 5 per cent after fees, as long as they have a sizable position in equities. If they are going to try to avoid equities, then we’re looking at a return of 1 per cent nominal [before inflation], so it’s going to be negative in real terms.

Young adults have been jumping into the stock market in the pandemic via free stock-trading apps and online brokerage accounts – what’s your advice to them about investing for retirement?

My message is that if people are starting to save seriously for retirement, don’t do your own stock-picking. I know of very few situations where people have done better by stock-picking than they would by being in some index funds, like an exchange-traded fund tracking the TSX. Low-cost ETFs – that’s the way people ought to be going.

You’re an advocate of retirees delaying Canada Pension Plan retirement benefits until age 70 instead of taking them at the standard age of 65 or as early as 60. How has the pandemic influenced your thinking on this key element of retirement planning?

If you started CPP at 65 you would need to earn a guaranteed return of 6 per cent on your savings for the rest of your life to do as well. If the yield on risk-free investments [like federal government bonds] was 6 per cent, then deferring CPP wouldn’t be so effective. But yields during this pandemic era have fallen to less than 1 per cent. Deferring CPP has become even more of a slam-dunk.

Delaying CPP to 70 is only practical if you have sufficient income to cover your needs in the preceding years, right?

One of the things I’ve made clearer in the second edition of the book is how much you need in assets to make deferring CPP until age 70 work. For example, if you had $300,000 in savings at age 63 and you decided you were going to wait until 70 to start CPP, you really can’t because you won’t have enough income. If you had $800,000 in savings, waiting wouldn’t be an issue at all.

Annuities are often dismissed by both advisers and individuals because their payouts are influenced by interest rates, which are very low. What’s your view on the value right now of using an annuity for part of your retirement income?

I am less keen than I was in writing the first edition because interest rates are so extremely low. I checked annuity rates about a month ago and I found that the amount of income you get from them hasn’t gone down as much as I thought. But if you feel comfortable holding off buying an annuity for two or three years, you’re going to see interest rates higher than they are right now.

We’ve seen two black swan events in the past 12 years – the global financial crisis and the pandemic. How can retirees protect their investments from sudden, unexpected events that cause financial markets to stagger?

We have to augment the amount of secure income we get, and that’s why deferring CPP makes sense. That’s one thing you have to be doing. Also, I paid more attention in the second edition of the book to the idea of a cash reserve. I strongly advise people to be putting 3 to 5 per cent of their income every year into a reserve fund. You’re not saving to get more retirement income, you’re saving for shocks.

Modest return expectations for the next several years mean fees will have more of an impact than ever on net returns from stocks and bonds. How do you suggest retirees assess the fees they’re paying with an eye toward reducing their costs?

You can go with a robo-adviser. I don’t expect everyone to be a do-it-yourself investor and to know enough to be able to construct a portfolio and rebalance it. With robo-advisers, you can get your fees down to 0.5 or 0.6 per cent and they’ll set up a portfolio for you. It’s hard to give up 1 per cent to an adviser when the nominal return on bonds is less than 1 per cent.

Let’s say I plan to retire in five years – what’s one step I could take to help ensure my retirement savings will last as long as I need them to?

You can reduce spending if you’re spending too much. I’ll give you an example of one person who was making about $350,000 a year – he was 66 and he only had about $400,000 saved up for retirement. He was spending virtually all of his money. If you have a few years to go, you can still change the course of your retirement trajectory by saving more money and finding ways to cut down on spending.

Note: Mr. Vettese has produced a calculator to help people see how much income they can draw from their assets in retirement. The Personal Enhanced Retirement Calculator can be found at

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