Tuesday, February 7, 2012

Newspaper editorial on retirement spreads fear

If your retirement graph looks like this, I have some homework for you.

The headline read, " It's not just baby boomers who have pension worries."

The first warning that this was a quick and flippant look at retirement, and the accompanying financial concerns, was the reference to baby boomers — a group that in Canada takes in everyone born in 1946 all the way to those born 19 years later in 1965. I prefer my sample populations in smaller chunks.

A recent poll, conducted by Harris/Decima for CIBC, found only 31 percent of respondents aged 55 to 64 said they were not financially ready for their retirement. The same poll also reported that among Canadians who said they have a long-term plan for retirement, 76 per cent felt they'd be financially prepared when they hit their retirement years.

Yet, the newspaper tells us:

"While the boomers panic, the post boomers are on the path toward living their golden years doing without," we are told.

 "It’s becoming clearer that only those who are prepared for the worst — or those who are the richest — are facing a secure old age."

Panic? Live without? Prepared for the worst? It can be a nasty, brutish world out there, I admit. But don't go to bed worrying about your financial future. It is just too uncertain — like much of life.

My feeling is that the editorial writer is in a panic. They have to calm down. Mellow out. Face a few facts. For instance, no matter how hard they try, no matter how well they plan, they cannot always be prepared for the worst. The worst has a way of being worse than anything imagined. Who saw the crash of 2008/2009 coming. Who had a retirement planning graph preparing them in 2000 for the huge dip in the markets eight years into the millennium?

In the end, all we can do is be prepared to batten down the financial hatches and ride out the financial storm if it hits. If the writer hasn't noticed, we are riding out a doozy right now. If your mantra is "buy low" this Great Recession is a wonderful buying opportunity. (Although, it could be a great opportunity to lose almost all . . . like I said, no one knows the future with certainty.)

The writer of this piece is middle aged. They have a good job and a working spouse, I believe. They have been saving for retirement for some years. From the way this piece is written, I assume they have a financial adviser. If so, they should know that the investment world has been absolutely mind-blowing great for the past two or three years. Surely, the writer has been making out like the proverbial bandit. If they haven't been, they need a new adviser — or learn to go it alone.

My investment in Inter Pipeline is up 132.5 percent and it pays a dividend of 5.7 percent today. My Crescent Point Energy is up about 100 percent and it too pays a nice dividend of 6.0 percent at today's stock price. Even some of my recent purchases, like the BMO Equal Weight Utilities Index ETF, are up nicely. (My ZUT units are up 7.47 percent, if you're interested, and they yield 5.25 percent.)

Over the past three years my portfolio is up about 43 percent, today's figures, and that is after taking money out every year in order to live. Will the next three years be as good? I don't know, but I highly doubt it.

I have one piece of advice for this editorial writer, if your financial planner guarantees any percent return over the lifetime of your plan, walk away. This is nonsense. There are few things that we know for sure, but one is that no portfolio will return a neat 5 percent annual return.

I strongly advise finding a Monte Carlo calculator you trust, google Gummy Stuff Monte Carlo calculator. Gummy, I believe, is the former head of the math department at the University of Waterloo. I use his calculator and find it quite reassuring. No wild promises. Another couple of good calculators can be found on the Money Chimp website: Risky Retirement Calculator and Monte Carlo Retirement Calculator.

If any of this doesn't make sense to you, then read about volatility on the Money Chimp.

This graph is a more accurate attempt at foreseeing your retirement future.

Oh, and the answer to my earlier question (Who had a retirement planning graph prepared for them in 2000 that showed a huge dip eight years into the new millennium?): Those folk using a Monte Carlo calculator. They had potential disastrous dips occurring every year.

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