You can't retire early on $100,000

Talk about a gap between hope and reality. It may be no surprise that every generation of Canadians wants to retire before the traditional age of 65, but the fact that most expect to head into the sunset by 61 doesn't even come close to jibing with our level of savings.

Most have rosy dreams of freedom at 61, according to a TD Waterhouse survey released Thursday. And the younger they are, the earlier they think they can retire. Generation X (ages 31 to 46) plan to do so by 60 while Generation Y (ages 25 to 30) would prefer to start their golden years while still in their 50s (by age 59).

But 59% of the 1,006 polled late in 2011 have less than $100,000 in household financial assets. Um, hello?

While that doesn't take into consideration employer pensions, life insurance policies or home equity, there seems to be an egregious disconnect here. Most government pensions don't start till 65 and $100,000 could be counted on to generate only $5,000 a year (assuming optimistically you could get 5% a year from that much capital).

Debt first, then think of golden years

You can take reduced benefits from the Canada Pension Plan as early as 60 but that, plus $5,000 a year from investments, would barely cover property taxes and $100 a week for food.

Ironically, 61 is the year I currently plan to establish my own financial independence, two years from now. I certainly wouldn't contemplate that with only $100,000 in financial assets or, for that matter, 10 times as much. Given current trends in longevity, medicine and fitness, most of us will enjoy three or four more decades of life after 60.

This came home to me when I interviewed 75-year old author Gordon Pape earlier this week in our newsroom. I witnessed a short chat between him and a Post colleague, who also continues to work full-time post-65. It left me thinking I should postpone my own "Findependence Day" - not because of financial necessity but because meaningful work is probably the best way to stay mentally and emotionally healthy over the long haul.

I doubt the two fellows chatting in the newsroom are constrained financially. However, the vast majority of Canadians cited in the TD Age of Retirement report are in a much weaker financial position.

TD finds 16% of Canadians report having "no financial assets whatsoever". Sixty-two per cent of Gen Xers have less than $100.000 as do more than half 53%) of Baby Boomers (aged 47 to 64).

But Boomers are somewhat more realistic about their retirement date: They don't expect to leave the workforce until 64, says Cynthia Caskey, vice-president and portfolio manager at TD Waterhouse Private Investment Advice.

Caskey says early retirement is possible but only if you have a plan and start saving and investing early enough. Every decent financial book I've read urges young people to start saving early in life. Unfortunately, the survey suggests not only do most Canadians fail to do this, many are still mired in debt well into their working lives: 44% expect to carry some debt into retirement, including 13% who expect to retire with a significant amount of debt

In my experience, the only people who can retire in their late 50s are those with employer-provided defined-benefit pensions they joined in their 20s, or those who faithfully socked away 10% to 15% of their earnings in RRSPs since they joined the workforce decades earlier.

There will always be the fortunate few who win lotteries, marry money or strike it rich in business or entertainment, but broadly speaking, younger folk should abandon the pipe dream of retiring at 55 or 60 and resign themselves to working at least five or 10 years longer.

If they don't enjoy their current professions, they should take steps to find something they ean enjoy well into their 70s, even if it won't be financially necessary.

The name of the game is to completely eliminate debt, then build wealth. If you haven't even got out of the hole, you have no business fantasizing about early retirement.

Financial Post
01 06 2012 

Jonathan Chevreau is the author of Findependence Day,

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