Bao Lam, a 43-year-old certified financial planner in Waterloo, Ont., believes in second opinions. He asked MoneySense for our thoughts on whether he’s on track to leave his high-paying—but stressful—job at age 47. That’s when he hopes to sell his business for $900,000 and invest that money until his retirement at 65. Bao’s 39-year-old wife Jeannette, who is currently his assistant, would stop working. “Doctors need a second opinion about their own health,” says Lam. “It’s no different with financial advisers.”

The Lams, who have a teenage son, have assets including a $325,000 home and $222,000 in registered and non-registered investments. They will be cashing in Jeannette’s $27,000 GIC and putting it towards their $118,000 line of credit later this year. The couple, who gross $180,000 per year, hope to have all their debts (including a $128,000 mortgage), paid off before retiring.

When they sell their business, the Lams will receive $90,000 gross per year for 10 years, with payments made monthly. “If I invest that money and don’t touch it until age 65, will that be enough to guarantee us a comfortable retirement?” asks Bao. “I plan to work at a salary job making $60,000 gross or so from age 47 until age 65—just enough to live on comfortably without saving a penny more. I’m not counting on CPP or OAS so the funds will have to come completely from my portfolio.”

The verdict

According to Heather Franklin, a fee-only adviser in Toronto, the Lams won’t be able to meet their targets. Selling Bao’s business sounds appealing, but the entire $900,000 won’t be available for investment until Bao is 57. At an annualized growth rate of 5%, the Lams should have $1.2 million at age 65. That sounds like a lot, but since the Lams aren’t counting on CPP and OAS—a pessimistic viewpoint, given that CPP is well funded—it’s not enough. Franklin says Bao should stay at his current job until 51 so he can save another $200,000 before he sells his business. “This will let him bulk up his savings and cushion him against any setbacks in his investments,” she says. “With all of us living longer and longer, he needs a minimum $1.4 million at 65 to ensure the portfolio takes him and his wife to age 95.”

Identify the rich

Status symbols—those things we judge others and ourselves by.  The house at the good address, the fancy car, fashionable clothes and exciting vacations are some of the traditional criteria used when we to the mental tally of other people’s income and net worth.  We all do this to some degree or another. It’s the foundation of “keeping up with Joneses.” The reality is that another person’s apparent wealth or humble financial means cannot be assessed through observation.  The Millionaire Next Door (published in 1996) by Thomas J. Stanley and William D. Danko highlighted that those of seemingly modest means based on outside appearances are sometimes the wealthiest among us. In this day and age of low interest rates and unprecedented household debt levels this concept of millionaires living modestly is probably even more likely to be true.  These modest millionaires have stayed away from the debt treadmill and they don’t have the status symbols to show for it.

Identify the poor

Identifying the poor is also difficult based on outside appearances.  A 2011 opinion piece published in The Globe and Mail by Margaret Wente titled “The poor are doing better than you think” suggested that the poor were wrongly identified because they had amenities such as air conditioning, DVDs, televisions and home computers.  The article goes on to explain the poor of today own goods that thirty years ago were not owned by most affluent families.  The conclusion is that these goods found in lower income homes demonstrate that the poor are not as poorly off as we might have thought.  But this is entirely wrong.

The reality is that ownership of specific goods cannot be compared across three decades.  Prior luxuries become current necessities.  For example, a home computer is a necessity for many school-aged children.  Some might suggest options such as using the local public library for homework but this isn’t workable for any duration of time.  A new study from the Joseph Rowntree Foundation on poverty in the U.K. supports the notions that the possession of goods is not a proper indicator of socio-economic status.  Some explanations of seemingly “high” living by lower income homes include the timing of the items purchase (for example, purchased before the family entered poverty due to unemployment). The study also noted that possession does not describe the quality, age or condition of the item.

Lee Anne Davies has worked as a consultant for insurance, wealth management, banking and financial education companies. She has a PhD in Aging, Health and Well-being and a Masters of Arts (MA) in Gerontology and Health Studies from the University of Waterloo and an MBA from Athabasca University’s Information Technology Management program. She’s also successfully completed the Canadian Securities Course and the Professional Financial Planning Course. To read more from Davies, visit her blog Agenomics.

Falk, a partner with Illinois-based Focus Consulting Group, reminded the audience of (mostly) financial advisers that the concept of retirement is still relatively young—about 120 years—going back to agrarian societies when bodies gave out earlier than minds do in today’s service economy, and life expectancies were far lower.

It’s arguable that modern retirement constitutes a loss of labour for society as a whole and is a waste of talent, Falk said, adding that the age demographic of 55 to 64 is showing increasing levels of entrepreneurial activity in recent years.

In his own country of the United States, Social Security was created in the wake of the great depression of the 1930s, motivated in part to intentionally discourage saving and coax so-called “job hoggers” into retirement: in effect, paying citizens to be unproductive. Canada’s equivalent system of CPP/OAS and GIS is structured similarly, he said. “When it comes to retirement, it makes no sense to pay people to be unproductive but these are our policies.”

However, he warned those who may be counting on nothing but government programs that Canada’s Old Age Security and the Guaranteed Income Supplement are funded from general tax revenues. “But if (economic) growth stinks, where is the revenue going to come from?” When the system was  created, the retirement age to begin collecting benefits was 70,  later reduced to 65. But in Canada it’s now moved back to 67 for younger people and will probably go back to 70 and beyond, he predicted. “Are your clients prepared for that?”

There’s a perverse logic here since many people reason there’s no reason to save if they think the government must take care of them in old age: it’s not rational to cut back one’s lifestyle today (which is what saving for the future entails) if you know you’re covered tomorrow regardless.

Relative to America’s Social Security, “in some ways, CPP looks better since you actually have the money, which is not the case in the U.S. Kudos to you.”

“Sounds like civil war coming up”

Falk also addressed declining employer-sponsored pensions. In the U.S., at any rate, taxes from private-sector employees are in effect being transferred to prop up government-funded pensions for government officials, firemen and police. Even so, the ugly truth is benefits are disappearing. Unfortunately, many retirees who were promised employer pensions took such promises as a guarantee but “they’re not,” even though those promises have impacted saving behaviour. “It sounds like civil war coming up.”

The trend is clear, in Falk’s view. “We need to raise the retirement age to make this work. Canadians are living longer and we have to be older for governments to pay us to stop being productive.” Based on biological capacity to work, and longevity and mortality trends, many could keep working until age 72 or 73.

Falk sang the praises of the benefits of working longer, pointing out the divorce rate is largest in the 60-plus cohort. “Retiring 24/7 with your spouse? For richer or poorer, but not for lunch.” And he warned about the financial consequences of divorce at this age: “Divide your assets in half and see how much retirement you can finance.”  Those who remain working have lower death rates: “Work seems to keep us going and keeps us healthier.”

Seek Findependence, not retirement!

While Falk did not use the term, this is the Financial Independence blog at MoneySense and I can’t resist adding my own thoughts to his talk. Yes, we need to retire the word retirement and my own recommended (if self serving) suggestion for a replacement is financial independence, or the contraction I’ve coined to denote it: Findependence. I’ve long argued it’s not prudent to put all your retirement eggs solely in the basket of government programs. You need to supplement that pension asset class with your own savings (RRSPs, TFSAs, non-registered savings) as well as employer pensions. That way, you are to some extent findependent of government programs or—God forbid—findependent of a corporate pension plan that fails to make good on its pension promise once you’re too old to go back to the work force.

When we dream of early retirement, maybe it’s early Findependence we really should be striving for. It doesn’t make much sense to retire at age 40 but it would be a worthy and achievable goal to be findependent by that age: if it’s defined as no longer depending on a single salaried source of employment income to survive economically.

For more on this theme, see this blog I wrote last week for The Chicago Financial Planner or a spinoff blog on my own site: Seek Findependence, Not Retirement.

Who’s that stranger with an opinion?

I believe the No. 1 reason why elder care issues arise is because many families find that they are making important life decisions with a stranger. The person may be their relative according to the family tree, but often these relatives have taken very different life paths.  Some family members may have had minimal or no communications over the decades of their adulthood.  They knew about one another’s lives only through their elderly parents’ conveyance of information and news.

What they bring to the decision-making process is a history of sibling rivalries or role-playing based on birth order.  Sometimes they also bring along a spouse who has heard these old family stories and has also built up a grudge of some sort based often on lore more than fact.  This baggage gets in the way of making the best decision for mom or dad.

Using a mediator

Eldercare mediation is not an accredited service so it’s a bit of buyer-beware.  Some professionals such as lawyers, clergy or social workers will act as mediators.  Services can be expensive, usually based on an hourly fee, although employee assistance plans may cover some or all of the cost.  In other cases, deciding who will pay for these services can become its own mediation issue.

Finding a mediator

Google “elder care mediator + your location” and see what’s available in your area.  If you are unable to find mediators a local faith-based group or health care centre may be able to suggest some options.

Becoming a mediator

Elder care mediation may appeal to baby boomers looking for an encore career.  They often have a lot of experience in business negotiations, families dynamics and elder care.  Careers in nursing, human resources and education are some of those that would provide a great foundation for a mediator role.  One place to begin learning more about courses and certifications is at www.mediate.com.

Lee Anne Davies has worked as a consultant for insurance, wealth management, banking and financial education companies. She has a PhD in Aging, Health and Well-being and a Masters of Arts (MA) in Gerontology and Health Studies from the University of Waterloo and an MBA from Athabasca University’s Information Technology Management program. She’s also successfully completed the Canadian Securities Course and the Professional Financial Planning Course. To read more from Davies, visit her blog Agenomics.

• Arnold Schwarzenegger, 65
  Plays a sheriff fighting an army of gang members in The Last Stand (2013).
  

• Sylvester Stallone, 66
  Battles a rival hitman with an axe in Bullet to the Head (2013).
  

• Harrison Ford, 70
  Leads a posse to attack extraterrestrials in 2011’s Cowboys & Aliens.
  

• Clint Eastwood, 83
  Fights off neighbourhood gang members in 2008’s Gran Torino.
  

We’ve all heard stories about people who retired ready to travel the world and suddenly dropped dead.  These frightening anecdotes carry a lot of emotion, making them easy to remember and readily shared.  While this can and does happen,  it’s not statistically likely to happen.  There’s also no evidence to prove that if they had continued working that they would have lived.

The Canadian government has told us to work longer. The recent changes to retirement entitlement programs such as Old Age Security (OAS) and the Canada Pension Plan (CPP) are intended to keep us working longer, building our retirement savings.  By working longer we also help with the country’s fiscal situation because we delay receiving retirement benefits.  But now there’s a third benefit which is the potential to reduce our use of health care because working longer, according to this study, is good for our health.

What’s really going on with health at retirement?

Mental health isn’t tied to age at retirement.  For most people, mental health improves, regardless retirement age, as long as the individual chose their retirement timing.  Those who unexpectedly retired (often due to health issues or company downsizing) did not maintain high levels of mental health.  They were not in control of their own destiny and unprepared for life without work.

Physical health changes and retirement are more difficult to interpret.  So it’s difficult to understand what is really going on in the study results.  People are known to provide socially acceptable responses to survey questions.  It could be that those who retired early sometimes felt compelled to provide an excuse.  Some may have indicated a health reason for their retirement even if this wasn’t true.  They don’t want to confess that they had enough money to meet their lifestyle needs and simply felt it was time to get on with their next phase of life.  This information may not make them popular with friends.

Abrupt changes are challenging

Working later in life may increase the likelihood of better health but it’s more likely that the type of work is the influencing factor.  Career jobs that include high stress and responsibility may not be the best choice when delaying retirement.  More satisfying, flexible and less demanding positions provide a chance to get used to a new lifestyle and living on a fixed income.  The study didn’t distinguish between career or post-career workers.

What is this study really telling us?

Health is not protected by choosing to work longer.  Health is protected by finding a transitional way to retire so that social networks are maintained or rebuilt.  It’s the social isolation that places health at risk.

Quitting work cold turkey isn’t healthy when it comes to retirement!

Lee Anne Davies has worked as a consultant for insurance, wealth management, banking and financial education companies. She has a PhD in Aging, Health and Well-being and a Masters of Arts (MA) in Gerontology and Health Studies from the University of Waterloo and an MBA from Athabasca University’s Information Technology Management program. She’s also successfully completed the Canadian Securities Course and the Professional Financial Planning Course. To read more from Davies, visit her blog Agenomics.

Bottom line: relocating can negatively affect our well-being because we don’t have deep community ties.

I made the development of community ties a priority for my move from Toronto to Victoria.  Friends and former colleagues made email introductions which I followed up by having a face-to-face coffee house meeting.  At each meeting I asked for ideas of groups that fit my business and leisure interests.  People are incredibly helpful to newcomers and I kept building up my local network. Social media has also made moving much easier.  I found Twitter to be the most useful approach because it’s easy to follow hashtags of interest.  For example, I would search on the local hashtag (#yyj) and narrow the search with additional key words such as (#aging, #retirement, #health).  This would link me to articles and websites providing details about upcoming events.

The two most important things I did were:

1. Ask for contacts (either personally or using electronic search methods), and

2. Get out and meet with people or attend events

Money can help

Maybe money can’t buy happiness but it certainly can help to establish roots in your new community.  I’ve heard many professionals comment that they have moved several times with great success. The moves were always related to a job opportunity for them or their partner. These same people talk about moving again in retirement and this concerns me. I think they underestimate the challenges of moving when it’s outside the structure of a business-related move.

Working provides social contacts, mental challenges and a sense of belonging. One of the challenges for new retirees is to find ways to feel a sense of contribution, challenge and involvement. Moving to a new community requires special effort to engage with those around you. In many instances this will require money. Make sure to include in your retirement planning costs for:

• Recreation centre fees or social club fees (and associated equipment and sportswear)
• Continuing education tuition (often these are not academic subjects)
• Community events such as theatre, symphony and other entertainment

Remaining autonomous when you held down a full-time job may have been fine. But autonomy can quickly become isolation in retirement. Most of us need outside interests, involvement with a variety of people, and activities that are fun and challenging.

About the money when you move

There are all sorts of financial logistics that arise when moving. The expenses related to the actual move are the most obvious and are discussed below.

For expenses beyond 40 kilometres there is an opportunity to claim some deductions on your personal taxes. Full time students can also make tax claims although the rules are a bit more complicated because these deductions are claimed against bursaries, grants and other sources that are required to be claimed against your personal income.

What can’t you claim?

1. Expenses related to visiting a place beforehand such as time to find a new place to live are not deductible.
2. Expenses against any income that is not earned income (i.e. you cannot claim against investment income).

Canada Revenue Agency form T1-M E (10)—“Information About Moving” provides the detail. It is suitable for employees and for those who are self-employed. Some key points:

Be sure to keep all receipts. This isn’t as obvious as it sounds because there is a detailed and a simplified method of claiming expenses.

• You are eligible to claim expenses for food, fuel and lodging as you travel to your new home.
• You are eligible to claim some living expenses in your new location as you get ready to occupy your new home.
• You can claim some expenses to maintain your former home (up to a maximum of $5,000) during your relocation period.

Lee Anne Davies has worked as a consultant for insurance, wealth management, banking and financial education companies. She has a PhD in Aging, Health and Well-being and a Masters of Arts (MA) in Gerontology and Health Studies from the University of Waterloo and an MBA from Athabasca University’s Information Technology Management program. She’s also successfully completed the Canadian Securities Course and the Professional Financial Planning Course. To read more from Davies, visit her blog Agenomics.

By adjusting our thinking about the timing of retirement to a later date, we remove the urgency to take action.  Preparations for retirement such as working on decreasing expenses, reducing the use of credit and rethinking our investment style for the fixed income years will be delayed.  This means that if retirement sneaks up on us even at the traditional age of 65, we may be caught unprepared.  The risks of the ‘drifting’ retirement age include:

1. Never really expecting to retire—it just happens to you one day whether you’re prepared or not;
2. An unexpected family or personal crisis leads you to decide that your time is better spent not working even though you are unprepared;
3. You don’t have “enough” money because you have not taken the time to understand what “enough” means to you, leaving you feeling financial insecure;
4. Your sense of self-worth and personal-contribution takes a nose-dive because you have not built a life outside of work.

The baby boomer generation identifies strongly with its careers.  Many are not interested in leaving behind exciting work lives for unscheduled time in retirement.  There’s no urgency to change their behaviour if retirement is continuously delayed.  Even the federal government wants Canadians to retire later.  The changes to retirement entitlements include gradually raising the Old Age Security (OAS) age of eligibility and modifying the Canadian Pension Plan (CPP) to increase benefits for those who access this entitlement later than age 65.

I am not convinced that a lot of baby boomers will continue to work into their mid to late sixties, even if their financial house is not in order.  Late retirement is a social change that is probably more complex than meets the eye.  The baby boomers are currently witnesses to the aging process through the experiences of their aging parents.  This will result in a readjustment of priorities and delaying retirement, at least from the primary career, will become less appealing and increasingly unlikely.

Lee Anne Davies has worked as a consultant for insurance, wealth management, banking and financial education companies. She has a PhD in Aging, Health and Well-being and a Masters of Arts (MA) in Gerontology and Health Studies from the University of Waterloo and an MBA from Athabasca University’s Information Technology Management program.  She’s also successfully completed the Canadian Securities Course and the Professional Financial Planning Course. To read more from Davies, visit her blog Agenomics.