Thursday, December 7th, 2023

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A long, comfortable retirement


The average life expectancy of a man who reaches age 60 is now 81 and for a woman it is an amazing 86.  Of course, average means 50% of Canadians live longer than that. To be safe, a couple aged 70 should plan for one of them to live to 95. In other words, grandmothers need a long term financial plan, possibly 25 years or more. Surprised? You should be.

A primary reason for low income or poverty in old age (80+) is unexpectedly long life and the corresponding destruction of the value of money by inflation. Just think – in 1942 a loaf of bread was about 5 cents. Many retired Canadians have sought the supposed “security” of fixed income yet their money has lost most of its value.

Using the Bank of Canada Inflation Calculator and historical Government of Canada 10-year bond rates we can create an informative story. Interest rates for January are used to simplify the illustration. Imagine you retired in 1992 at the age of 60 with savings of $100,000 and invested it in a 10 year bond paying 8.15%. Your income was $8,150 per year. In 2002 at the age of 70 it matured and you bought another bond, this one at a rate of 5.34% and your income dropped to $5,340/yr but the cost of living was $9,517. By 2012 the interest rate was 1.98% and your income fell to $1,980 but your cost of living was $11,656. In 2022 bond rates were 1.76% and your income was $1,760 but your cost of living grew to $14,501. 

Your income dropped by 88% while the cost of living increased 81%. You need $14,501 to preserve your 1992 lifestyle but you only had $1,760. You retired financially secure and now are way below the poverty level, even with the CPP and OAS pensions. Your investment was guaranteed the whole time but it now provides a real income 81% lower than 30 years ago. You were told and believed it was safe and secure. Oops. You went broke, but very safely.

In contrast, the rise in the value of equity investments during this time has preserved the purchasing power of your money and corporate dividends have risen faster than inflation. Long into old age you will need equity investments if you seek true security. If you seek true and lasting retirement income security just contact our office – it’s what we do. You can’t fight a war against 30 years of rising living costs armed only with a fixed income weapon.

As a retirement investment bonds are like committing suicide to keep from getting killed. A retirement of 30 years dictates a primary objective of neither growth nor income, but rather growth OF income”   – Nick Murray 

Year 10-year bond rate January Bond income from $100,000 Cost of living Lifestyle status
1992 8.15% $8,150 $8,150 100%
2002 5.34% $5,340 $9,517 56%
2012 1.98% $1,980 $11,656 17%
2022 1.76% $1,760 $14,501 12%