RRIFs, spend rates and good financial writing

Occasionally one comes across an article in the financial press worth sharing.

So, as an a salute to excellent financial writing may I point you to actuary Fred Vettese’s article on stressing testing RRIF savings.

Writing in the National Post on Sept. 23, 2014, Vettese uses his knowledge of historic pension fund returns to develop a useful scenario for spend rates for retiree savings.

To summarize Vettese’s article: “When it comes to risky investments no guarantees are possible, but if one can achieve an average return of 5.5%, it would take some rather extraordinary short term losses before the 4.5% spend rate became a problem.”

Vettese comes to this conclusion despite assuming “the capital markets in the next 25 years would be more unstable than the last 54 years and in spite of that, the RRIF still stayed afloat.”

Which is all good news for retirees, if Vettese is correct. They will have a little more spare change in their pockets.

Government, and why we need a revolution

Ever wonder why government sucks?

Does dysfunctional government make you despair?

A new book The Fourth Revolution: The Global Race to Reinvent the State makes for gloomy reading but holds out hope that there is a coming revolution in government.

Written by John Micklethwait, editor in chief of The Economist, and Adrian Wooldridge, management editor at The Economist, the book tracks government’s messy road over the past 300 years.

Freedom, democracy and good government are given as reasons as why the West has dominated global affairs for the past 300 years. But those advantages are now threatened by government bloat, according to the authors.

“The statistics tell the story: In America government spending increased from 7.5% of GDP in 1913 to 34% in 2000, and to 41% in 2011…The average share in 13 rich countries has climbed from 10% to around 47%.”

But statistics tell only part of the story. “America’s Leviathan claims the right to tell you how long you need to study to become a hairdresser in Florida (two years) and the right to monitor your emails. It also obliges American hospitals to follow 140,000 codes for ailments they treat, including one for injuries from being hit by a turtle.”

Back in 1914 “a sensible, law-abiding Englishman could pass through life and hardly notice the existence of the state, beyond the post office and policeman,” the historian A.J.P. Taylor once observed.

Today, The Fourth Revolution authors write, “Today the sensible, law-abiding Englishman cannot pass through an hour, let alone a lifetime, without noticing the existence of the state.”

Which brings us to Ontario and the proposed Ontario Retirement Pension System announced by the government in the 2014 Ontario Budget this spring. The government has concluded that money is too important to be left to ordinary people. (This from a government that will spend $14 billion more this year than it brings in.) And that ordinary people lack the capacity or intellect or understanding to save for their retirement.

Is this a crock? I think so and will explain why in future blog posts.

Meanwhile, I urge you to read The Fourth Revolution. It will keep you up nights.

The one article all retirement experts should read

Ok, I admit it.

I am not a very good blogger.

Blogging has taken a back seat to skiing over the past month.

But the extreme cold is finally defeating me.

I am back at my typewriter while nursing the frost bite.


This blog was intended to be about pensions, retirement and the future of work.

As boomers age the premise was that our perceptions about retirement will change.

Some – if not many — aging Canadians will continue to work. Sure, some will work because they have to. Others like Brian, my 78-year-old brother-in-law, will continue working because they want to.

Skiing and snow-shoeing provides one with lots of time for reflection.

As I sat on the lift dangling in the howling wind coming off frozen Georgian Bay, protecting my exposed flesh from ice pellets and snow, I kept thinking about a recent Rob Carrick article.

(Yes, thinking about a Globe and Mail article while skiing is kind of weird.)

Earlier this month Carrick wrote a column on longer lifespans. It is required reading for all the so-called retirement experts:

“We operate on a timetable for life that looks appropriate for living to 70, not 90: Kids making choices about careers and university at 17; young adults hurling themselves into the housing market in their late 20s or early 30s; middle-aged people aiming to retire before 65. How much of today’s pervasive sense of money anxiety can be traced to our feeling that we’re not where we’re supposed to be, financially?”

When it comes to retirement, Carrick writes, retirement is another milestone that needs an adjustment:

“It used to be that you’d retire at 60 or 65 and expect to live maybe another 10 years. We still expect to retire in that age range, and yet we might get another 20 or 30 years to live. In that context, retiring later seems natural.”

Carrick’s message? Living longer should change our approach to retirement.

So far it hasn’t.

OECD recognizes home ownership as key retirement plank

Is the family home a pension plan?

Or, at the very least is home ownership a critical part of a retirement plan?80727229_Copy_of_home_sweet_home.2451702

New research from the Organization of Economic Co-operation and Development (OECD) sheds light on this question.

Why is this important?

In Canada, proponents of Big CPP cite low workplace pension coverage and RRSP saving rates to support their arguments for expanding CPP. They ignore other forms of wealth accumulation including home ownership.

This makes no sense considering Canada’s high rate of home ownership.

For poorer retirees, public pensions are generally the only source of income, according to the OECD report. Other sources of income are private pension schemes and the workplace, since older people in many countries continue working to earn part of their retirement income.

But this is only part of the story.

According to the OECD researchers: “Concentrating solely on cash incomes may detract from the full retirement picture and, in some cases, overstate elderly people’s exposure to the risk of poverty. Owning a house and living in it, for example, means less need for cash to pay the rent.”

Homeownership is on the increase in OCED countries and older people are more likely to be homeowners. This demographic change is particularly evident in Canada, according to the OCED paper. Of 55+ Canadian households, 73.7% own their own homes.

In Canada, the percentage of homeowners among the over-70s rises from 52% in the bottom decile of the income distribution, to 80% in the middle decile, and to more than 90% in the top decile.

Factoring imputed rents into income generally increases the disposable income of householders who own the dwelling they live in. Among the 22 OECD countries with relatively comparable data, the 65+ incomes rise by 18% on average when net imputed rent is added.

The inclusion of imputed rents changes countries’ old-age poverty-rate rankings. While the Netherlands, Luxembourg, Hungary and Iceland remain at the bottom of the poverty scale and Switzerland at the top both before and after imputed rents, all other countries experience significant shifts. Greece, Italy, Norway, Spain, and the United Kingdom, for example, all rank much better.

Read the OECD  report Pension at a Glance 2013

Public sector pension costs linked to declining government services

Have we reached a milestone in the history of public sector pension funds in Canada?

For the first time a major media outlet has linked the fragile state of some Canadian public sector pension funds to a decline in government services.

There it was splashed across the front-page of this morning’s Globe and Mail, “Pension costs force end to home delivery.”

The article links the phasing-out of letter delivery to five million Canadian homes by Canada Post to its massive $6.5 billion pension deficit. According to the article, the savings will help Canada Post deal with the pension deficit without further borrowing or turning to the federal government (read taxpayers) for additional help.


Of note,  you will not find this article online — under its original headline anyway. By the time the online version was published the headline was changed to, “Canada Post phasing out home delivery, raising rates.”

Where’s the money for seniors in OECD countries?

In the 1996 film “Jerry Maguire” sports agent Jerry Maguire is exhorted by his client to “Show me the money.”

The language is more refined. There is no dancing in kitchens by Cuba Gooding Jr. or yelling into phones by Tom Cruise but the Organization for Economic Co-operation and Development (OECD) attempts to “Show me the money” in its latest look at pension schemes.


Since 2005, OECD has published Pensions at a Glance, a comprehensive and detailed examination of pensions systems in the 34 OECD countries and selected non-OECD countries.

The 2013 report is the fifth in the series.

Perhaps the word “glance” translates differently in French and German but there is no mere glancing at this opus. Staring at the report for days on end is more like it, which partially explains why I have been remiss in writing blog posts. My lack of production has nothing to do with the opening of the ski season.

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