Adrian Mastracci, portfolio manager at KCM Wealth Management, says “Size aside, the numbers are meant to stir thought and discussion. The emphasis is on what's important about retirement to each investor."

Vancouver, BC (June 18, 2007):  What does it take to turn the retirement dream into reality?

First, a clip from the latest study sponsored by the Canadian Institute of Actuaries. They concluded that only one in three Canadians expecting to retire in 2030 are saving at levels required to meet basic household expenses in their retirement. Many may need to sharply increase their annual savings or continue working past age 65 to avoid financial hardship.

Someone once said: “You spend your whole life believing that you're on the right track, only to discover that you're on the wrong train.”

Adrian Mastracci, portfolio manager at Vancouver based KCM Wealth Management says, “One can always do something about which train is taken to the retirement station. Many investors begin the accumulation when they reach the magic 40’s. I’m happy to report even in the 30's.”

Retirement can bring about a variety of surprises. Such as rising inflation, cost of personal health care, unpredictable investment returns and even major investment losses.

Unfortunately, lost time is the one ingredient that cannot be recaptured without incurring more investment risks. Hence, the earlier the exercise starts, the better the results are likely to be.

View on retirement

Retirement studies and surveys are interesting and can serve as helpful tools. However, many of them dwell on the negative outcomes, which may have tendencies to discourage.

I’m not surprised that 42-year olds retiring in 2030 are likely not saving for retirement. The more immediate focus is raising children and dealing with the house mortgage. Then saving for retirement.

I prefer to spotlight how to make things happen. My reaction to the study is that those Canadians have around 23 years to go. So let’s put together a roadmap and start the journey. It’s ample time.

Working past age 65 is quite common. Not necessarily because people have to, but because they want to. For example, some retired clients take on specific projects that interest them. Some work part time to keep using their expertise. They seem quite happy in their pursuits.

The assumptions

Every investor ought to estimate the size of nest egg that achieves and sustains the chosen retirement. I call it the financial independence analysis.

As an example, I’ll summarize the assumptions for three financial independence situations:

• Each nest egg is for a couple where the female spouse is two years younger than the male.
• The desired goal is a before-tax retirement income of $30,000; $50,000 or $80,000 per year.
• Retirement income is in today's dollars, for the couple's lifetime, commencing at age 65.
• The surviving spouse receives 75% of the desired retirement income.
• Inflation is estimated at 2.5% per year for their lifetimes.
• Return on investment is 6% per year starting at retirement and continuing for their lifetimes.
• 75% of CPP/QPP entitlements and full OAS are received by each spouse.
• 5 years are arbitrarily added to each normal life expectancy for planning purposes.
• The possibilities of inheritances and other windfalls are not considered.
• The calculations of capital do not leave a legacy.

The estimates

A note of caution about the figures. They are ballparks for the particular retirement criteria. Not an exact science.

Accordingly, the estimated sizes of retirement nest eggs are as follows:

Well, it's true. The devil is in the details.

Some would argue that these figures might be hard to attain. I would agree, but only for those who leave it too late. It may not always be easy, but it can be done.

Size aside, the numbers are meant to stir thought and discussion. The emphasis is on “what's important about retirement to each investor”. That leads to defining specific needs and criteria.

There it is. The retirement nest egg made to measure. Let’s get to it.

Your comments are welcome. I am available for a discussion.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.