Monday, December 11, 2017

Biggest Mistakes Retirees Make with Their Investments

I was reading an interesting article by Jason Heath titled Here are the six biggest mistakes retirees make with their investments. It made me think, but one of my thoughts isn’t what you might expect.

I don’t want to pick on Jason because he’s a good guy who provides solid information in his articles. Like other Certified Financial Planners, Jason works primarily with wealthy people. Now, the definition of wealthy is different in each person’s mind. A person with a million dollars in investible assets might say the threshold of wealthy is $3 million. Someone with $3 million might say the threshold is $10 million. However, the typical Canadian would call the clients of CFPs wealthy.

Jason’s thoughtful list of the most common mistakes he sees is based on his client base and not the typical Canadian. To be fair, it’s unlikely Jason wrote his own headline, and it’s the headline that I think is wrong.

Here are a few of the biggest financial mistakes Canadian retirees have made:

Saved very little money.

Carried debt into retirement.

“Bought” RRSPs at the bank a few times, but cashed them out years ago.

For those of us who have built significant savings before retirement, I highly recommend Jason’s article to see if you’re guilty of some common mistakes. Maybe you’ll learn something profitable.


  1. I read Jasons articles and 99% of the time agree with him .......for his client base. As you say Michael what about the rest of the population? I often say those who have less have less room to mess up and need help even more. If you don't have much then a commission paid advisor cannot afford to talk to you based on how the industry compensates them. Its also likely the focus should be on paying down debt and building an emergency fund which earns them zero. One of the biggest challenges I have seen in the last 10 years is the death of the company pension. As an example in the Saskatchewan blue collar workers, welders, heavy duty mechanics or people in small agricultural companies have RSPs ( because I believe the running costs and paperwork is less for employers) , not RPPS or DB pensions that are locked in. Folk get laid off and during that time may use the RSP. There are more profit related ones as well. They used to be AS WELL as RSP now I am seeing them stand alone. In a " bad" year the employer puts a smaller amount in the pension. The pensions are profit related not a percentage of salary matched by employer. One client last year, employer had a record year, used the excess to buy two other companies so the books showed a loss and at 52 on a $85k salary he got $1900.00 in his pension. He knows, he saves. In the past that would have been a 4% match approx $7k However at the same time staff received a 1% pay rise which doesn't keep up with mortgage, property tax and food increases round here so many of the $45k salaries don't save extra . Its not uncommon to see 55 year olds with 10 years service in small companies having $55k in the group RSP. It doesn't seem to occur to them this isn't enough. There is a lack of understanding how little CPP and OAS pays out to most people. Or we have a lot of ostriches sticking their head in the sand and hoping for the best. There is a fair amount off jealousy towards crown corps and federal workers as we have lots in Regina and I think some people use it as an excuse to do nothing themselves. I have clients with nothing , we work on debt and clients with millions. The difference is they step up and help themselves. They came looking for help. I don't think financial planning should be the preserve of the rich but its catch 22 helping a person change a lifetime of behaviours takes time and the fee only planner also has a life to pay for. I think high net worth get help to avoid taxes etc and lower net worth when they are scared or in pain about something. I hope in 2018 to make a series of videos and work books that people can use and then if they need help buy an hour of time rather than the full financial plans that cost thousands.

    1. @Kathy: You're right that people of modest means need help. I can't blame CFPs, though. They need to find clients who can pay for their expertise. During my consulting years, I certainly didn't seek out clients who couldn't afford to pay me. It's not hard to understand why people who see what you see tend to support expanding CPP.

  2. I'm trying to wrap my brain around the idea of using growth/vs dividend stocks for a retirement income portfolio. Say I have a million dollar portfolio of growth stocks in late 2007 when I retire, say for argument in a TSX ETF. I plan to cash shares equal to 5% every year, or $50000 based on my portfolio value in 2007. So here I am in early 2009 and my portfolio is down to 500k. It almost recovers around 2012 but then dips again, and again and today is only worth marginally more than it was 10 years ago. How on earth does one create a draw down plan for investments with that kind of volatility?

    1. @John K: Recall that the TSX dividend yield was around 2.4% at the end of 2007 and spiked to just over 4% in the 2009 crash. So, it's not as though you'd have to sell $50k worth of stock each year. Most dividend stocks don't pay 5% either, so creating $50k in income would take some selling of shares in this case as well.

      No matter what type of stocks we own, it's advisable to have some amount of fixed income during retirement. The worst of the 2009 crash was brief enough that one could rely on fixed income investments to add to dividends to make up the $50k while waiting for prices to recover.

      Living through a market crash is no fun. The real way to protect yourself is to aim for a starting draw down of less than 5% per year.

    2. Well what I've done is a little different. I have a company pension and if I apply for CPP, that and my pension will bring in about 47k a year, so for a base line I'm already taken care of. I have a 500k portfolio. I'm an ex real estate guy and it's an industry I understand, really it's the base foundation of the economy because it's a root source of capital. I don't have the inclination to operate rental properties directly so I've built a portfolio that is designed to generate cash through thick or thin, holding a wide range of real estate and mortgages, plus a range of other income holdings. REITs, a few MICs (which I consider a high yield bond holding but with lower risk than regular corporate bonds), utility flow through funds like ENB IC, Chemtrade, where the business exists to flow cash from mature operations to shareholders. Also some covered call ETFs in banks and utilities. About 60 holdings. The whole thing streams about 6.2% in cash each month into my RSP and LIF, and I just pull the cash out like a pay cheque, about 30k a year. The overall volatility is about 20-30% of the broader TSX and dividend cuts historically are less frequent with businesses like this. I won't be selling shares any time soon until I decide I need to increase my draw down more than 6%, or if I decide a company is in such trouble that its dividend is in danger, which means a major crisis for a flow through fund or REIT. I know this violates all the rules but it is what I feel comfortable with.