While some people may be concerned that they will not be able to retire the way they intended – the steadfast advice is: plan, plan and then maybe plan some more. Even in this changing environment, having a financial retirement plan is still relevant in these changing times.
Today’s podcast features Matt Fader, Licensed Insolvency Trustee with Allan Marshall & Associates. Matt talks about assessing what you want your retirement to look like and what you need to do to get there.
A few of the topics covered are:
- The implications of retiring with debt
- Borrowing money to fund RRSP’s
- Balancing saving for retirement with sacrificing the quality of life
- Developing a structured plan for saving
Licensed Insolvency Trustees are federally regulated and approved by the Canadian government. With their extensive knowledge of financial services, they will give you honest advice. This podcast is a ‘must listen’ if you are like millions of Canadians that are wondering how to navigate saving for their retirement.
Read the Transcript
Well, welcome to the debt matters podcast where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. I’m Wayne Kay and in today’s show, we’re going to be discussing a plan for retirement and what happens if you don’t have enough money saved.
My guest today is Matt Fader from Alan Marshall’s & Associates in Halifax, Nova Scotia. Matt, thanks for being here.
Matt Fader 0:27
My pleasure, Wayne, thanks for having me.
Retirement is something that, I don’t know, other people probably lay awake at night worrying about. Sometimes I stress about this. So I think this is going to be a great topic, how to most people look at retirement.
Matt Fader 0:41
Historically, retirement is kind of a newer invention, right? Pensions and things of that nature, really didn’t evolve until, I think, it was after the depression or things like that. Things like social security or CPI, things like that came into effect. So, you used to be worked until you were dead.
And then they made up this concept of saying, well, maybe you should enjoy your golden years after you’ve toiled for so long. So, traditionally, from the models that were developed – a lot from the baby boomer generation, the concepts were fairly straightforward. You’ll work until you’re 60, and you’ll be dead by the time you’re 70. And everything will be great.
Unfortunately, well fortunately actually, lifespans have changed. People are living longer than 67. As a retirement age, a lot of 67 year olds, they’re not even ready to retire. So we’re really hitting a moving point on saying when is the right time to be able to do it?
And how do I do it effectively? When we spin it back to a debt standpoint, it really is difficult to say. How do I save for retirement when I have debt? How do I put that money away and still maintain interest or credit payments, while I’m trying to save for my retirement.
Debt can really have a negative impact on somebody’s ability to retire – let alone the resources that are required. Saying when are you going to retire – and how long is this going to supplement you for? We don’t have a lot of defined benefits packages anymore unless you’re fortunate enough to work for her Majesty or some of the provinces. And even defined contributions are lingering down because they’re just too expensive to maintain. And again, lifespans are just increasing. So the tables don’t really provide enough to say – well, what happens when this person that retires at 65 lives till they’re 95?
Well, and as I said, I’ve been lying awake at night, sometimes, worrying about the retirement situation. And even though it’s 15 years away for me, it’s something I started stressing about. A lot of times you look at what the calculators say, and they say you got to have $5 million in the bank. Well, that’s not going to happen. Then I freak out saying, Oh, I’m way off – I’m so far off. And I bet you a lot of people feel this way. I’m so far off, I might as well forget about even worrying about it.
Matt Fader 3:32
And that seems to be a lot of the perception with the younger generation with people of my generation, and millennials, where it’s – well, I don’t know when I’m gonna get to retire. Personally, I think I’m on the freedom dead plan myself.
And look, I’m not a coal miner. I know, there’s not going to be a point where my back gives out and I can’t mine coal anymore, or these hands have no calluses on them. I’m not a fisher person down here in Atlantic Canada.
So I’m in a position, and a lot of service oriented careers are in that position, where you say, well, as long as my brain stays healthy, and I’m able to continue to work, then there’s nothing that really forces me into that.
And retirement’s a tricky thing. Thirty years ago, if you said – Well, I’m going to retire at 65 and if your lifespan is 95, that’s 30 years. You’re saying, well, I need to have enough resources saved up to help supplement my income because trying to live off of CPP and OAS alone, it’s not a lot of money.
You’ll see people with $1,200 to $1,400 a month between those two, sometimes on the higher end $1,600 per month. To say this is the only monthly amount that I have to survive off of other than a quarterly GST and that’s terrifying when you look at the cost of living.
What does it cost to survive if you’re going to rent a house, or rent a place to live? I mean, here in Nova Scotia, I’m in a three bedroom apartment, I pay $1,430 a month. And that’s cheap. It’s very, very difficult if you don’t have something set aside to help supplement that income.
But again, you need to have a plan in place to say – when do I retire? How long do I expect to live? What do I need to help supplement my income so that I can live a comfortable life so that after I’ve retired, I don’t have to get a part time job at Home Depot or something like that just to make ends meet, so I can put food on the table.
And for a lot of people, like I said, they say, retirement is not in my cards, so they just don’t bother – they’re living for today. Or they’re getting hyper aggressive with trying to build their retirements. But that comes at the consequences, saying they’re really sacrificing their quality of life now. They’re leaning heavier on debt to be able to, to survive. And then they get in this trap where they’re overwhelmed with debt. Yeah, I got a lot of money in my RRSP – but what good does that do you if you can’t make your credit card payments?
So how do you end up balancing that, when we talk about preparing for retirement? Are you finding that people are in that situation where they have high debt, but they’re also taking debt on RRSPs? etc?
Matt Fader 6:37
Yes, absolutely. We’ll have people that will borrow money to invest into their RRSPs. That’s been a strategy that’s been out there for a bunch of years – why let it gradually build, we will lend you a bunch of money. And you just have to use the interest that’s gained on that to make your payments plus the difference.
We’ve seen plans like that – that have come up to try to sort of jumpstart somebody’s retirement. But it is a major issue. I can’t speak for the entire population, because, of course, I see a small fraction of it – people that are filing assignments and Bankruptcies or Consumer Proposals.
But yes, we run into a lot of people that are woefully unprepared for retirement and along with a host of other issues that come with being unemployed for 30 years. You better really love your wife or husband, if you’re going to be spending the next 30 years with them.
We’ve got these things, like the new thing is the gray divorce, as people are retiring. People are retiring, the kids are out of the house, the house is over leveraged because they put the two kids through university so that they didn’t have to get student loans. And as a result of that, now, they’re retired, they’re carrying too much debt. They’re spending all their time together and we’re seeing a lot of marital breakdowns.
I’m sure. I was just saying to my wife, we just celebrated our wedding anniversary yesterday, actually. I said that, having the kids and getting through school, that was just the pressure test for marriage. And now we’re smooth sailing. I like hanging out with her. So I’m very lucky. And I still love working and I love doing what I do. So I am very lucky when it comes to that.
What is the plan for? Can we go back to talking about the debt and also saving for retirement? Is there some kind of a percentage that you should do or what is a good way for us to look at that?
Matt Fader 8:45
Well, the numbers are always sort of funny. When they’re, Oh, you should set aside three months of income as a safety net or something like that. But, of course, somebody who says – well, I make $1,500 a month, three months isn’t going to be enough. For a good effective safety net, where somebody who makes a million dollars a year, of course, three months might be a little bit extreme.
But, it all boils down to being able to say – what is your cost of living? So much of being able to save for retirement or for anything really boils down to people living within their means. So if your goal is retirement, if your goal is to say – well, I need to have X amount of dollars in my RRSP within a certain timeframe. And you know, it’s the same thing that anyone goes through. You go to a little seminar or whatever about goal setting and your goals need to be ‘smart’ – specific, measurable, attainable, realistic and timely. Those are the things that ‘smart’ stands for.
But yes, you specify your goal. I want to retire. When I retire in 20 years, I want to have X amount of dollars saved put away. We can talk about how you put away that in a minute.
Measurable, you set your timeframe attainable, you need to be able to then take that timeframe and break that in to say, Well, if I’ve got 20 years, 20 years being 240 months – what do I need to be able to contribute on a monthly basis to get to that goal. And then when you break that down even further. If you want to break it down to weekly, or semi-monthly, or however it is that people are paid, you end up taking a chunk of your available income and saying, well, this is what I need to be able to invest, to be able to achieve that plan. And if that money is there, then great.
But if you’re looking and you’re saying, okay, in setting that aside, I still need to pay for my monthly expenses, my housing, my utilities, my weekly expense, or my car payment, my weekly expenses, my foods, and groceries and my gas and things like that, and your occasional expenses, Christmas birthdays, car repairs, things like that. And retirement suffers when you have all these pieces, gobbling up your resources. When you’re saying -well, I have this $500, I’m supposed to put it into my RRSP but the car broke, I’m woefully unprepared for that.
Your options are, I either put it on debit, I put it on the credit card or the line of credit, or whatever and save the 500 bucks, or I don’t put the 500 bucks in the savings and I don’t take myself into debt. And it’s a very, very tricky spot to be in. Because of course, when you get to the point where you might say, Well, I have my money set in the account and I’m ready to retire but I’m carrying $100,000 in debt. You say well, what are you doing now you’re retiring. But because you have so much of your resources now going towards debt payments, in addition to the fact that your quality of life hasn’t changed, you’re no further ahead for having made that investment. On top of that, depending on what vehicle it is that you’re saving, you’re dealing with tax consequences that come from you doing those withdrawals to pay debt.
So it can be a very, very, very, very tricky spot to be in. Which is typically why when it comes to directed savings. It’s sometimes easier just to have it directed at source. You know, if your employer does RRSP matching, that’s fantastic. It’s free money. And if they’re deducting it from sources coming off your pay before you even see it, then you know that’s taken care of, and you’re now left to try and manage with what you have leftover. It robs you of that decision to say, do I put this money over here or do I put it into these bills that came up. It forces people to deal with things a little bit differently. So directed savings is easier when you’re trying to control things yourself. It requires a very high level of discipline and a real structured plan to be successful.
As you were talking, I started thinking, is the plan or the goal? Is it to retire without any debt?
Matt Fader 13:16
Well, typically, that’s what you’d like to do, right? Because, of course, when you’re retiring, your income is being reduced. You’re clearly not making the same amount of money that you were before. So as a result of that, and in theory, your expenses stay the same, because it’s not like your rent goes down because you’re retired. It’s not like food gets cheaper because you’re retired. Yes, there’s some places that’ll give you 20% off if you show up on a Tuesday or something like that – but the changes aren’t substantial enough to really offset against that loss of income.
So, it’s wonderful to have said, I achieved my goal that I got to retirement and I had all this money put away. But if the end result is that you end up pulling that out to service debt, you really put yourself at a disadvantage.
You really say -well, I suffered for those 20 years because I worked so hard, I made interest only payments on all my debt. So I burnt all that money. And now I’m pulling against my retirement to continue to make interest only payments towards this debt so I’m really getting no further ahead.
And I hate to make that sound like it’s doom and gloom but it is the reality that we’re in right now. And in addition to adjusting people’s focus, somebody like me will not be able to retire at 67. I’m 44 years old. I’m going to probably work for another 40 years. Yeah, lucky me. But I also may live to be 100. Right? I may die on the moon. I don’t know.
I think you can’t compare your own situation to others, either. That’s a big thing for a lot of people. Because when it comes to retirement, I know people who’ve retired at 50 or 55 – but their teachers. They get that DB pension, right? And how do you compare that because as you said – that’s such a rarity now.
And so no matter which people you know, it’s up to you. You get a DC possibly, if you work for a company, you get a DC pension, where they really don’t have any responsibility for that. They just give it to you and say here, you invest it where you think you should put it. Good luck, right?
So I guess I look at my friend, Mona. Mona is the Walmart greeter in town. And I swear to God, she’s got to be 85 to 90, and just loves working, loves smiling and enjoying life. And I think, well, there’s somebody who’s loving what she’s doing. And she keeps working and good for her. It’s not like she’s working all the time, but she’s still there. So once again, you can’t really compare.
But if you were to say – okay, what would be the proper way to go about planning for retirement? And we only have about five minutes left to dive into this, what would your advice be?
Matt Fader 16:15
Well, like I said, the real thing is to structure a plan to try to determine when it is that you want to retire. Based on your career, what is the average lifespan of a worker who does, whatever. And then if you’re serious about it, to start to make an aggressive plan towards it.
RRSPs are a great long term vessel for saving, because they come with a tax benefit when you contribute. There’s a tax consequence when you withdraw. But of course, the idea is I contribute when my salary is high, and I withdraw against it when my salary is low. So it ends up saving you some money income tax wise. It’s a great vehicle for a long term with a slow withdrawal against the funds.
You know, other elements like mutual funds – they’re great, because you’re not limited to the room, because we know we can only contribute up to a certain amount of our RRSPs before they cap out. So they become an effective alternative.
Things like a tax free savings account are better for a short term type of thing, because there’s no consequence when the withdrawals are done – so put your money for a power pair, that’s a better place to put it. But really, the idea behind savings is and retirement is understanding. Nobody’s going to do it for you anymore. Unless you’re one of those very few people that still has some kind of pension out there. But, you know, this isn’t the 70s. I can’t get a pension working at Sears and fold underwear for 30 years and get a pension.
Well, the good old days. Wow. And you know what I’ve been playing with, I gotta tell you, I’ve been playing with the compound interest calculators online. I am loving those. And because I used to always think, I have got to get 17% and if I’m not getting 17 or 20% on my return… Now, I’m much more realistic doing my compounds that maybe 5,6, or 7 percent, and then seeing where I’m going to land in the future. Those are wonderful.
Matt Fader 18:28
Well, yes, and they’re terrifying. But, the other consequence of the current environment that we live in is that money is cheap. I can go back to 2007. Not too long ago, 14 years ago, but I had a guaranteed high interest savings account of 4%. So it was a savings account that was getting me a 4% return.
And here it is – 14 years later, the prime rates like two or below, I forget what it is today. You know, when I bought my house, my mortgage rate was 5.35% – thinking that’s a great rate. And now you can get them in two and a quarter. So money’s become cheaper. When money becomes cheaper, people are more inclined to spend. We have a real real problem. And this is outside of retirement.
But we have a real real concern about seeing what happens when the interest rate jumps. That’s going to have a real bad effect on a lot of folks out there, unfortunately, because they’re just getting by right now at 2% and 2% is a ridiculous interest rate. It’s cheap, you know, like you said, If I’m investing and I get 2% return, ain’t so good. I want to see that 15 or 20%. That’s great if I can do that. But the markets don’t play that way anymore.
So we’ve had a real shift in the last 15 years in consumer spending and the lending policies and things like that – that again, are encouraging people to generate more debt to be able to survive. And that is getting in the way of their ability to save for retirement.
This has been a fantastic show – great information. And, of course, we will keep people up to date when that interest rate does go up. We’ll have another show on that for sure, Matt.
Hey, if they have questions, what website should they go to?
Matt Fader 20:31
My website is, of course, we can help.ca. That’s for the Alan Marshall and Associates website. They can reach me directly. My email is Matt@wecanhelp.ca
So if they want to reach out to me, keep in mind, I’m not a financial advisor. I’m a Trustee in Bankruptcy. So I know a little bit about a lot of things. But we operate in the area of Bankruptcies and Consumer Proposals. So if anybody has any debt questions, they’re more than welcome to reach out.
Terrific. Okay, Matt Fader, my guest today from Alan Marshall & Associates in Halifax, Nova Scotia, and once again his website, wecanhelp.ca.
And that’s it for today’s Debt Matters podcast just make sure you subscribe wherever you get your favorite podcasts from. And of course, if you want more information, you can always check out debtmatters.ca. Thanks very much for listening.
Transcribed by https://otter.ai
About Matthew Fader
Matthew has worked in the insolvency field since 2005 and joined Allan Marshall and Associates in 2017. His positive outlook helps reassure his clients with any financial insecurities they may have. Matt’s goal is to ensure that everyone has the best possible experience and is treated with respect.