The Longer You Put Off Saving For Retirement, The Less Wiggle Room You'll Have

If you're in your 50s and haven't started retirement planning yet, what's the holdup?

Even if you plan to keep working well into your 60s, even if you have the increasingly rare luxury of a defined-benefit pension plan, there are questions that have to be asked, decisions to analyze and strategies to map out well ahead of the actual retirement date.

For starters, how's your nest egg?

A decade of turbulent equity markets and low interest rates has made mincemeat of many RRSPs. They're not where the models estimated they'd be, and there are no obvious solutions for goosing returns now.

The Toronto Stock Exchange has returned a little more than six per cent annually going back 14 years, and it's been one of the best-performing equity markets in the world. International and U.S. investments have been pretty much dead money for most Canadian investors for a decade.

In her useful new book 52 Ways To Wreck Your Retirement ... And How To Rescue It (Wiley, $24.95), the head of the BMO Retirement Institute, Tina Di Vito, points out that if someone needs $20,000 of annual income at age 65 over and above what they're getting from government or employer pensions, the accumulated nest egg should be about $400,000.

That will cover you for about 20 years ... provided inflation remains modest and there's no sudden erosion in the value of assets at the start of the retirement period, which would hasten the depletion of funds.

Have any idea what government pensions you're entitled to and what they'll pay?

Basic Old Age Security, which kicks in at age 65, is currently a maximum of about $6,500 a year.

If you had a job and contributed the maximum to the Quebec Pension Plan your entire working life, you'll be eligible for another $11,500 - provided you wait until age 65 to start collecting. The average recipient gets less.

Modifications to QPP rules also must be taken into account, given the significant changes on the horizon. Starting in 2013, the bonus for holding off collecting QPP rises to 0.7 per cent per month after age 65 from the current 0.6 per cent.

That means the QPP boost for waiting will be 8.4 per cent a year or 42 per cent at age 70.

On the flip side, the penalty for receiving QPP before 65 will be gradually increased to 0.6 per cent a month from the current 0.5 per cent, starting in 2014. That means a reduction of 36 per cent at age 60, compared to 30 per cent now.

Because of the changes, it may be more tax-efficient for many retirees to begin tapping into their RRSPs before applying for QPP.

Tax-free savings accounts also can be an important piece of the retirement puzzle, providing bridge funds or serving as an asset repository.

The new pooled registered pension plan unveiled last week by the federal government may eventually play a role as well, although it isn't obvious at this stage why it would be any more enticing to investors than the RRSP system already in place.

The variety of options and scenarios facing baby boomers as they near what used to be called the golden age further underscores the need for a retirement plan, but many Canadians seem content to defer it.

"People in their 50s have changed a bit - they're less spend-happy than they used to be - but has that translated yet into action plans (for retirement)? Not that I've noticed," said Bassam Kadi, portfolio manager at local investment firm MacDougall, MacDougall & Mactier.

Kadi said there's still a lot of complacency about retirement. "Nobody wants to admit they're getting old," he said.

"There's also a lot of cynicism out there, along the lines of 'Why should I be saving and have the market just eat it up?'"

The longer you put off the number-crunching, however, the less wiggle room you have. Counting on government, the stock market, real-estate prices or the 6/49 to make up for years of retirement insouciance is a pipe dream, not a plan.

Source: http://www.montrealgazette.com/business/longer+saving+retirement+less+wiggle+room+have/5742361/story.html