Planning for retirement - if, supposedly, the time is flexible
I've just been reading a good article about choosing to delay retirement, in "Canadian MoneySaver" magazine, a non-slick one that carries short, meaty articles - and no ads. So they are totally subscriber-driven. If you're Canadian, for my money (nearly 20 years a personal financial plannner), it's the best around.
If you're Canadian, I have some observations relative to our pension systems that might be interesting - if you want to write. Don't think it appropriate to go into them here.
We used to assume retirement at age 65.
In earlier years, our number of years of expected benefit from a pension were fewer than at present - we are all living longer.
If we retire early, fewer years to pay into the plan - and more years to draw out. The annual payout will of necessity be lower.
People who delay retirement till later get substantially increased regular rates of payout.
Most pension systems more or less assume target date to be about age 65.
Many people are worrying about the continued viability of some of the pension systems.
Some feel that they'd better plan to fund a larger percentage of their projected retirement income themselves.
Jonathan Clements, writing in the "Wall Street Journal" on December 11, 2002, tells of advantages of delaying.
1. Save more money or pay off more loans.
2. Current investments have more time to grow.
3. Number of years retired will be fewer.
If you retire at 65, with spouse age 65 and purchase a fixed annuity to pay guaranteed monthly income until the death of the two, current offer of payout would be about $525. monthly.
If you delay retirement until age 68 and assume that the $100,000. has grown to $115,000., the company would currently offer such a person payout of $634. monthly - 21% higher.
Assuming that you and spouse would qualify at age 65 for Soc. Sec. payment of $1,500./mo., waiting until age 68 would have you qualify for $1,792./mo., 19% higher.
But additional work-related contributions would mean a substantial increase above the accrued amount of credit in that beneficiary's account at age 65, so monthly payout would be even larger.
Which will be the base rate upon which adjustments for inflation will be made in subsequent years.
Some workers can arrange a decreased load of work and responsibility, with comcommitant reduction in pay, after age 65.
On the other hand if you are sure that your potentially fairly large number of future years will be adequately funded, including increases for inflation, you may choose to retire early.
Especially if you find your work situation too onerous or distasteful, or too many innovations for your liking.
Many local financial planners suggest that one retire as early as possible, from the point of view of most effective use of Canada Pension benefits, which become available at age 60, at 30% reduction from potential payout at age 65. A good idea if you invest it, get a regular rate of return on the money, and die before your early 80s.
If you can obtain a somewhat higher rate of return, the break-even age goes up.
If you can arrange a type of income - or a deferral - that's taxed at a lower rate, the break-even age goes even higher.
Many who retire these days tell me (earlier a retirement consultant) that they are so busy now, after retirement, that there's no way that they could find time to go to work (if it were available).
Some sit at home and "couch potato" - but I doubt that the alert and active crowd here would be inclined to vegetate like that.
A I've said before - learning how money works is an interesting hobby - that pays well.
How is it that many spend more time planning their vacation than they do planning their retirement?
Good wishes to all for a happy, effective life - every day, whether employed or retired.