Tuesday, January 19, 2010

Realistic Retirement Expectations

According to the most recent RBC retirement poll, only 25% of Canadians expect to have enough retirement income to realize their dreams. The message isn’t very subtle as we head into RRSP season: contribute more to your RRSP.

It’s important to remember that this is a poll of what people think will happen, not an expert’s prediction. The poll says more about people’s expectations than it says about what will really happen.

It would be nice to live in a world where everyone got to realize their dreams, but life doesn’t always work out the way we want. I see the results of this poll as a sign that Canadians’ expectations are more realistic than what I remember from the tech boom.

A decade ago we didn’t realize it, but we were coming to the end of a huge bull run in the stock market. The TSX Composite had returned a compound average 16.4% from 1993 to 1999 inclusive. People talked seriously about extravagant retirement plans that started with

“Assuming I can make 15% to 20% per year on my retirement savings ...”

The craziest part was that nobody laughed at these unrealistic expectations. People took the inflated stock prices as a given and expected them to continue rising at an unprecedented pace throughout their retirements. Sadly, stocks were destined to drop sharply, particularly technology stocks.

It’s no fun to keep adding another year or two to how much longer you’ll have to work, or to lower the amount you expect to be able to spend each year. However, it’s better to be realistic than it is to jump into retirement and run out of money.


  1. I will have to cut back and only light my Cuban made contraban cigars with $50 bills and not $100?!?! I cannot live in a world where this is not deemed a necessity!!!!

    On the other end I hope to be able to afford low ash cat food (less chance of getting kidney stones) for my dinners....

  2. My retirement investing strategy is currently based around a real (after inflation) return of 4.2%.

    As I get older and decrease my risk profile that rate will fall.

    How could anybody expect 15 to 20%. They must have completed absolutely no research.

  3. Retirement Investing: Not only did one person expect 15 to 20%, but most people expected that or better. It was a crazy time. In another sense it was typical because people expected the future to look like the recent past.

  4. Michael: Just out of interest what period of time are you referring?

    A good book on finance or simply looking at some historical averages (whether calculated yourself which is what I do now or via some good web sites)would show it as impossible over a retirement planning period of time. Should take 5 minutes max to at least get some concept of reality.

    BT in case I'm not clear, I don't doubt you for a second. Some people just refuse to take responsibility for their actions and march like sheep to a retirement filled with poverty.

  5. Retirement Investing: The period I'm talking about is roughly 1998, 1999, and 2000. Almost everyone felt like an expert on stocks because almost everything they bought went up. It wasn't unusual to hear serious debates about the merits of Pets.com and other money-losing ventures.

    Thicken: Interesting observation. In my limited experience, it seems that the people with the most job security are the ones most desperate to retire. I remember one of my uncles being able to tell me how many days left until he was going to retire when he was still over two years away.

    1. The second reply above is to Thicken My Wallet's comment:

      More a comment on our life than anything else but having to work a few more years is sold as something terrible. Says a lot about how we have constructed our work environments. Most people who love their work or find meaning in it are terribly upset when they have to retire.