RETIREMENT: A TRIAL RUN

Here’s a bit of advice if you haven't saved a dime for your retirement: Try it out first!


"I think if you want to have a sense of what that lifestyle is going to be like you should practise living on it now," says author Gail Vaz-Oxlade, a strong proponent of living debt-free and saving. "Forget about whether you can enjoy it, see what you'll have to do to make it work:'


The reality is if you want to stop working completely at 65 and retire, you are going to have to make some tough lifestyle choices if you are just surviving on government money.


Consider the maximum you can get from Canada Pension Plan is $986.67 a month per person. Add in $540.12 for Old Age Security. You could qualify for the Guaranteed Income Supplement but once you start coupling up, it gets clawed back. 


Sure there's not much tax, if any, in most provinces on the money, but try living on it. Median household expenditure in Canada is about $58,000, according to Statistics Canada. For couples over 65, the median drops to $39,000. And let's not forget that $986.67 is the maximum amount; the average Canadian receives only $512.64 monthly from CPP.


You really need to see what it's going to be like when you are old and poor

"If you try living on that much money right now and find it's impossible, maybe it's enough motivation for you to split the difference and put some of that money back in your savings and not spend all of it on crap now:' Ms. Vaz-Oxlade says.


She says people need a reality check to understand that if they are spending money on "37 versions of cellphone plans you have between now and when you retire;' that will come with a price.



"It's not going to mean much when you open up your fridge and all you are looking at is a bag of milk and some yogurt and that's all you have until the end of the week," she says. "You really need to see what it's going to be like when you are old and poor:'


How will it play out? Thke a look at the cellphone. While the average Canadian household spends about $619 a year on the devices, for a couple over 65 it drops to $246 a year. Food drops to $6,853 a year, or about $132 a week. About $1,238 a year goes for restaurants, or $24 a week - so one trip to Swiss Chalet a week for the average senior couple.


Compare that to what the average couple without children spends. They allocate $728 for those cellphones and $8,860 for food, of which $1,850 goes for restaurants - that's a few extra nights out.


Ms. Vaz-Oxlade is the first to admit she doesn't know anybody who has actually tried her experiment. " I don't know what they are going to do," she says of people with no savings.


One thing they'll do is sell the family home and downsize or get a reverse mortgage. Going from a big city to a small town could cut your costs but that won't work for all Canadians, Ms. Vaz-Oxlade says.

"You have to eat into the principal.

We like to use the big Toronto numbers for the sale of your home and live off the income story. but that's not reality for most people;' she says.

The average house in Canada sold for $363,346 in 2011, according to the Canadian Real Estate Association - meaning a sizeable amount of equity for retirement. The problem is more and more seniors still have some sort of mortgage debt on retirement or other debt like credit cards or consumer loans.

Seniors with debt are becoming more of an issue, says Scott Hannah, executive of the Credit Counselling Societyfinds. He says if you haven't saved it means everything is on the table.

Are you going to still have two cars or even one car? Are you going to stay in your home? Are you going to be able to help your children?" he says.

The biggest thing seniors might have to give up is the end of their dreams. "The future just isn't that rosy," Mr. Hannah says. "They have to give up some of their lifelong goals they had in retirement in terms of activities, goals or places they wanted to travel to."

Fee-based certified financial planner Jason Heath of E.E.S. Financial Services was looking at the issue for a family friend who recently came to him with the problem of no retirement savings, no pension and no other source of income - just what the government will pay out.

"it's short of what the average Canadian will spend. If you fall in the situation of having no retirement savings and you live in Toronto, you might have to look to relocate;' Mr. Heath says, adding that the move from the big city to small town applies across the country. "Even if you do that, it's going to be awfully tight and a grim forecast for their golden years."

He says the other alternative, and one he sees happening more, is parents turning to their children for support. Instead of the child living in the basement until his 30s, suddenly the parents are the ones hanging out in an apartment suite of their children's homes.

Why not? Instead of paying $1200 for an apartment, you pay your kids $500 to move in with them," Mr. Heath says. "It's a bit of a way of getting repaid for all the diapers being changed, and maybe it's only fair for all the kids who continued to stay home."


The CFP notes a single person is going to have even tougher problems trying to live off that money because he would not be splitting some major costs like housing while doubling up on government benefits. "If you are going to retire with no savings, you better at least have a partner;' he says,

Mr. Heath says even if you are just five years from retirement, it's probably worth trying to do something - and that includes downsizing in advance of your employment disappearing. "You realize you are going to have a shortfall so why not reduce your costs to cover the shortfall in the retirement?"

The other solution, of course, is to keep working. "Go to McDonald's and there are a lot of jobs taken on by retirees," he says.

Of course, if you are still working, consulting or doing something else you are paid for, that's not really retirement, says Craig Alexander, chief economist at Toronto-Dominion Bank. But it is increasingly becoming a way to survive.

There are some people who actually may see their standard of living go up in retirement if they haven't saved. But they are the minority and they most likely have spent their lives living close to the poverty line, Mr. Alexander says.

"Canada has one of the lowest rates of poverty in the industrialized world, and One of the reasons is because of OAS and GIS, which provide a minimum floor which is 'enough to keep you out of poverty, but not much more;' he says.


Garry Marr
Financial Post
02 08 2012