People who have savings when they retire are faced with tough choices for how to spend their money to get the most out of retirement.  Their instincts to try to preserve their savings often leads them to mistakes such as living too small, overpaying their taxes, and not getting the most they can out of CPP and OAS. The common investment accounts retirees have are RRSPs, LIRAs, TFSAs, and taxable (non-registered) accounts.  Trying to figure out which accounts to draw from is already a complex problem.  To add more complexity, retirees might have a workplace pension, a possible inheritance, income from part-time work, and face decisions on when to start drawing CPP and OAS.  Fortunately, it’s not important to come up with a perfect plan.  What you need is a good plan that isn’t too far from the best possible. It’s not possible to go through all combinations of retirement scenarios in a single article.  Instead, I’ll discuss how some good savers go wrong in re...

Long time reader Garth asked for my opinion on Wade D. Pfau’s essay Eight core ideas to guide retirement income planning .  Pfau is a smart guy and it’s no surprise that his article is excellent.  I do have some thoughts around the edges, though. “Play the long game” Pfau starts with an important point: “A retirement income plan should be based on planning to live, rather than planning to die.” This means that making sure you have enough money in old age is more important than trying to squeeze out as much money as you can in early retirement.  But we’re not asking you to sacrifice now.  By taking reasonable steps to protect your much older self, you’re freed up to spend a reasonable amount early in retirement without fear of running out of money.  Pfau lists six steps toward playing the long game which I’ll translate into the Canadian context. Delaying starting CPP and OAS As long as you have some savings to live on and you’re in reasonable health, delaying the...

It’s challenging enough to figure out how much you’ll want to spend at the start of retirement.  Even more challenging is deciding how your spending will change as you age.  These choices make a big difference in how much money you’ll need to retire.  They also shape the spending options you’ll have available throughout retirement.  Here I explore the good and bad parts of common wisdom on retirement spending to arrive at my own spending plan for retirement.  Spoiler alert: the “go-go, slow-go, no-go” narrative is good marketing, but it has cracks. Two extremes Some people focus on the early part of their retirement.  They want as much money as possible available early on while they’re still young enough to enjoy it.  They seem to think of their older selves as a different person who they care less about than their current selves. Others focus on their older selves and worry about running out of money at some point.  These people usually spend far...

I recently learned an interesting new way to abuse statistics using regressions.  (I’ll describe it first in a way that requires no math background, and give some math details at the end.)  It can be difficult to tell if those who abuse statistics are dangerous and well-intentioned or dangerous and know fully what they’re doing.  Either way, they’re dangerous. Suppose we conducted a study of retirees in their 60s to find out what percentage of their portfolios they spend each year.  Even though this percentage varies across retirees, we want to get an overall sense of whether they’re spending too little or too much. For the raw data of the study, I’m going to choose unrealistically simple numbers to make the calculations easier.  The purpose here is to illustrate abuse of statistics.  Here’s the raw data: 1000 retirees have $100,000 saved and spend $6000/year. 100 retirees have $1 million saved and spend $40,000/year. 10 retirees have $10 million saved and ...

On episode 289 of the Rational Reminder podcast, the guests were retirement spending researchers, David Blanchett, Michael Finke, and Wade Pfau.  The spark for this discussion was Dave Ramsey’s silly assertion that an 8% withdrawal rate is safe .  From there the podcast became a wide-ranging discussion of important retirement spending topics.  I highly recommend having a listen. Here I collect some questions I would have liked to have asked these experts. 1. How should stock and bond valuations affect withdrawal rates and asset allocations? It seems logical that retirees should spend a lower percentage of their portfolios when stocks or bonds become expensive.  However, it is not at all obvious how to account for valuations.  I made up two adjustments for my own retirement.  The first is that when Shiller’s CAPE exceeds 20, I reduce future stock return expectations by enough to bring the CAPE back to 20 by the end of my life .  These lower return expec...