Living on less and loving it

Is there a phony retirement crisis in Canada? I often hear that people aren’t saving enough for retirement. But when I speak to retirees, I get a different story.

I did a column saying that living on half of what you earned before may not hurt, if you go into retirement with your mortgage and other loans paid off.

Readers agreed wholeheartedly. Many also agreed that financial institutions like to exaggerate the amount you need to save for retirement and suggest you need 70 to 80 per cent of your previous income to live comfortably.

But these firms have a conflict of interest when it comes to advice about reducing debt. They earn almost nothing from from accelerated mortgage paydown, compared to the management fees on sales of mutual funds and packaged investment portfolios.

Retirement is a hot topic these days. Many people are already there or getting close, wondering if they can leave early. They feel reassured to hear they may have saved enough, even if the investment industry says no.

Author: Ellen Roseman

Consumer advocate and personal finance author and instructor.

12 thoughts on “Living on less and loving it”

  1. I just finished a retirement seminar today and the subject of “how much do I need” was on everybodies mind. The answer was “it depends on how much you make and much you want!”. Nobody else can pick a rule of thumb number to meet your specific and special needs and wants. I agree the first step is to get debt free and the rest falls out of having a financial plan that can clarify what you want in retirement and whether you have the cashflow to fund it. Over saving often happens because people are pushed to be afraid of retiring by advisors who make a living selling securities.

  2. As MM points out, we don’t know how long we’ll live or what pricey medical bills we might face. Inflation erodes our purchasing power as the years pass.

    Living on less certainly makes sense. So does eliminating nondeductible debt well before retirement.

    Wouldn’t saving more than you think you need give you peace of mind during retirement?

    We’re currently re-listening to The Millionaire Next Door (, which quashes many myths. The self-made wealthy underspend and oversave.

  3. I agree with a lot of points that MM makes.

    Will you keep your health care insurance during retirement?

    If you need to live in a retirement home, how much will that cost? (Way more than I thought.) This is a scary and difficult part to guess.

    Like for everything else, make a budget for the first 5-10 years of retirement and calculate the cost of your activities. As others mention, what you want to do will have a BIG impact on the amount of $ you will need.

  4. How much do you need in retirement is, to my mind, a bit like the “how long is a piece of string?” question.

    If people have a lot of money, their needs expand. So too it is downwards, since we live in a rich society and our minimum / basic needs are pretty lavish by 3rd world standards.

    The best way to estimate income and spending is to do a budget. An envelope will do. That focuses the mind into thinking about what you want to spend on and where the money will come from and it inevitably leads to the trade-offs.

    For instance, I curl and enjoy it a lot, so it is higher on my spending priorities than travelling to Timbuktu and beyond. If I had lots more money I would go watch the world championships every year.

    Since my house bills, groceries, etc. are a certain minimum, and there is a bit of shortfall, I need to work a bit so that I can continue curling.

  5. Thank you for your article. My husband and I are in our late thirties and early forties.

    We have never had a portfolio review by a financial advisor to tell us how much we should save. We have been simply using common sense: we budget in order to achieve a combination of paying down our mortage faster, not having consumer debt, saving for our retirement (I also have a defined benefit pension) and for our child’s education through RESP.

    We also make sure we have a sufficient emergency fund. (Even after my husband was unemployed for almost a year, we didn’t run up any consumer debt.)

    Whenever we hear these reports of minimum required for retirement, we start second guessing ourselves: Are we doing the right thing? Saving enough? etc…

    Your article just helped me realize that we are probably going to be OK and that we should not fall into the banker’s marketing pitch/scare tactics to make us invest more.

  6. Ellen, there are lots of ideas of how much you need in retirement.

    If someone is young, OAS and CPP payments may be less after inflation and taxes in the future.

    For example; At its inception, the prescribed CPP contribution rate was 1.8% of an employee’s gross income, up to an annual maximum. In 2010, the prescribed contribution rate is 4.95% of a salaried worker’s gross employment income between $3,500 and $47,200, up to a maximum contribution of $2,163.15.

    The employer matches the employee contribution, effectively doubling the contributions of the employee. If a worker is self-employed, he/she must pay both halves of the contribution. So now the contributions are almost 10% in total. Do you you see a trend here?

    Under the new rules, a 60 year old who plans to work has a choice: he or she can ask for CPP benefits to commence, even though they’re continuing to work. If they do that, they will continue to contribute to the CPP and each year will get an increase in benefits to reflect that decision.

    The bottom line is it may not be wise to rely on government payments in the future. The gentleman who is over 65 contributed less (paid less taxes) in his working life than people now and not collecting CPP as an example. So his words of wisdom may not work in the future.

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