[steve41]

In our parents' and grandparents' world, the standard script for financial planning was comprised of... 'saving for retirement' and 'living off our savings'.

In other words, life was generally broken into 3 phases... pre-employment, employment and retirement. When we plan, it is generally assumed we are past the first milestone and are already working. Most planners and financial planning programs work on the "now I am working, now I am not" premise with a savings regime, a retirement age and a final retirement phase.

Maybe it is time to re-think the whole approach to planning, and remove 'retirement age' from the equation.

The most obvious reason is that more and more 'near seniors' are thinking about some form of partial retirement. If I plan to scale back my full time job and take on part time employment, then what defines my 'retirement age'?

Other situations can occur such as ... I have saved up a significant amount in my RRSP and now I plan to use the proceeds as down-payment on a home. My RRSP takes a hit (perhaps a big hit) and then it gets refreshed at a future time. Or, I plan to quit work at some future time and take a prolonged sabbatical to refresh my education before I re-enter the workforce. Is that a 'temporary retirement'?

Or.... at some point after I quit work, and I start drawing down my nest egg, my savings get a nice fat shot in the arm from a capital gain such as downsizing my house, selling the cottage, or (heaven forbid) an inheritance. Is that year when the capgain hits, deemed to be a 'retirement relapse'... sort of like going back to work for a year and earning a big fat paycheck.

So... maybe we should think of the financial planning paradigm as something where throughout life there are periods when money flows to us (salary, pension, spousal support pmts, rental income...) which is sufficient to live on, and periods when those inflows are not sufficient to live on. We simply move investment capital in and out of savings in order to secure a certain lifestyle.

Just a thought.

 

[canadianbanks]

The problem with retirement today is that central banks are debasing our money and savers are robbed by inflation. Our society has been conditioned to accept that inflation of around 2% is normal, that deflation is bad and debt is OK. People can no longer afford to keep their savings in cash, because their money lose purchase power year after year, so they are forced to speculate in the stock market and/or housing markets. We all know how well did this one go .

 

[stephenheath]

While I completely agree with your premise, and think it is a good idea, personally I am still going to plan for retirement, because I've never had a job that I've loved, and I'm aching for the day, 40-45 years hence, when I can stop working period and do absolutely nothing useful for society.

 

[steve41]

OK, the title of the thread was a little misleading. My point was that most financial/retirement planning models are based on the 'now I am working, now I am not' paradigm. This approach is not very practical in light of the first posting.

I am simply making a case for a more generic (tax-based) financial planning model which looks at all cash flows... intermittent/discontinuous salary profile, cash windfalls (selling/downsizing home or cottage, inheritance... etc) rather than the the simplistic.. "working, saving for retirement, retiring, living off savings til death" model.

 

[Bullseye]

It's an interesting way to think, but I think it's really in the realm of those of us who have that luxury to do so.

For most people, they like to use a retirement date, as that is the point where they don't HAVE to work any longer, their total wealth will support their lifestyle. This is the comfort point, it doesn't have to mean 'retirement', but more financial independance.

So maybe everyone should be striving for financial independance, not a set retirement age. That's certainly my goal. I don't really care or plan to ever retire from all forms of paid work, but I know I'll sure feel a whole lot better when I have the security of knowing I'm okay if I don't want to, or can't for whatever reason, work.

To me, the basic structure of a retirement plan for most people should be;

- Buy a house (when it's reasonable and optimal to do so), and pay it off as fast as possible.
- Start building a passive income stream, be it interest from savings, dividends, business income, whatever.
- When income stream covers all your basic/low level needs, presto, you're now financially secure
- Everything else is bonus, live it up and enjoy life with it

 

[steve41]

To confuse things... how about the guy with a gold-plated non-integrated DB pension which, when he hits 65, will, in combination with his cpp&oas deliver him more income than when he was working. How do we define 'retirement' then. (this happens, BTW)

 

[Jon Chevreau]

I agree with the main premise of the thread title: that we should remove the word "retirement" from the lexicon. And with what should we replace it? How about the term I used that serves as the title of my financial novel, Findependence Day? Findependence is of course a contraction of the phrase "financial independence." It doesn't mean full stop working to full-leisure "retirement." It means you continue to work if you choose, not because you have to because you need the money, but because you prefer to.

Details here:
'
http://www.financialpost.com/financialpost.com/fd

 

[George]

Steve: I'd argue that the person with a gold-plated DB pension should "retire" from the pensionable employment as early as possible and enjoy a scaled-back, low-stress, part-time lifestyle.

Some people I've worked with fit the description (i.e. gold-plated pension plan with many years of service) and they have gone on to die at age 66 after retiring at 65. I'd think that retiring at 50 (from full-time employment, at least) would be a better choice than working until the pension is maximized.