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Pensions and retirement savings. Is there a point where we reach enough?

Raisin

Veteran

I have a question for you all. If you had a defined benefit pension plan would you also save money, separately for retirement?

It's something DH and I don't totally agree on. I'll admit, I am a bit anxious and feel like you can never save enough! Lol, but DH thinks that saving outside our retirement is a bit of an overkill.

The way our pension works (and we both have the same one), and depending on when we retire, we can both expect to receive 50-70% of the average of our top 5 years of salary pay.

So I have to admit, I think DH has the same idea that most people I work with do. Most are just going to rely on their pension. But me being neurotic, I have read you could need up to 80% of your current salary when you retire, and since we don't know exactly when we will leave we could be looking at 10-30% less then they recommend.

We do currently save in an RRSP but I would also like to do a TFSA (sorry, Canadian stuff for you Americans). But honestly, am I going overboard? Cause it's not like we couldn't find something else completely reasonable to spend on. We are hoping to move soon actually, and build a house. We also have RESP's but I don't count those, I mean they are savings for the kids.

When is it TOO MUCH savings?

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24 replies

Latest reply was from DonnaF

MsMary

Veteran

I'd say it's too much when it's preventing you from providing the necessities for your current lifestyle, and not a minute before. I have a defined benefit pension that I expect to pay 50-60% of my salary upon retirement, and I am still maxing out my 401(K) and 403(b) plans at work. I want to travel in my retirement, I want to be able to afford good health care, and to be honest I don't want to have to cut back on my lifestyle.

I say stick to your guns and save, save, save!!

Janet

(website)

Veteran

Personally, I don't believe there is such a thing as "too much" savings. How about college for your children, etc.? People are living longer than ever, and finding sometimes that retirement savings don't stretch as far as needed.

I am a firm believer in saving for the future beyond just what is allotted through a pension or retirement accounts. However, I am not familiar with how any of this is structured in Canada, only the US. My mom had my father's pension, social security, and retirement accounts she was drawing from at the time of her death at age 80, but she also had savings in the bank and some rental properties that generated some income. My parents were solidly middle-class, so this was the result of tucking away a bit of every month's income in savings. My mom's mantra was "pay the bills, save some, spend some." They also kept every house they bought, each time our family purchaed and moved to a new home -- we rented out the old houses because my mom rightfully saw a lot of value in owning real estate.

What about investing -- stocks, bonds, real estate, etc.? Are you doing anything along those lines?

lyn*

(website)

Veteran

I know that your pension is pretty good - but I think it's important to account for things outside of that: what if you or hubby needs additional medical care? Or needs to go to assisted living? There are certain things not covered by the government, and are quite expensive.

I don't think TFSA is a bad idea - I max out mine every year, and my RRSP's. That being said, I will not have the luxury of a pension.

I wouldn't count RESP's - although my dad says the best investment is your children (I guess this is true, because I hope to be able to pay for any of their additional expenses that their pension and savings do not cover).

qfbrenda

Veteran

What are the chances the company(s) promising your pensions won't exist in 30-50 years? I wouldn't count on it, personally. If finances allow, I would save 15% of your income for retirement (Dave Ramsey's suggestion) and the pension can be a bonus. I might feel a bit more safe counting on a government pension but even governments don't last forever. I guess I'm in the "can't have enough savings" camp.

Raisin

Veteran

You guys are all making the same points I make to DH! Lol, I think that settles it, I knew I was right, hahaha.

Janet, DH would LOVE to own property and rent it out. We live in a city where the rent rate is ridiculously high and many people make a really good living buy just renting out duplexes and stuff. I am a scaredy cat when it comes to that, I can only think of all the stuff that could go wrong. If I would get on board though, it would definitely be something DH was into.

I will say though that we would most likely be receiving the higher end of our range since I started work at 20 and him at 25, even if we go to max pension we would both only be 55 and 60, so it's very likely we'll be in the 60-70% range. And more like 70% for me, I mean I don't know what I'd do if I retired at 45. I'd probably need a LOT of money though!!!!

Raisin

Veteran

qfbrenda I would say it's very unlikely we would lose our pension, but by no means would I say it's impossible. I work for our Federal police force though, so I think something major would have to happen for that to go under. In which case there would probably be a lot worse going on in the country. But yah, that's the point DH makes to me, and I always tell him "nothing is a guarantee!"

Isabel

Veteran

I think that when you are young, you should do everything possible to max out everything that you possibly can. You can cut back later on, but that money will continue to accumulate and grow and compound. One can never save too much at an early age. The TFSA sets limits for you. For you will have a boundary.

My husband and I ( both 49 ) have been maxing out everything since we were about 25. As my children get closer to college and they have music lessons and bikes and computers ( you get the drift ), we will have to scale back on the savings. But we have had 24 years of growth that will carry the momentum until we retire - even if we get to the point that we can't add to it anymore. We both have pensions similar to yours also. But I look at it this way : if something comes up while we are younger, we can do something about it. Get a part time job, cut back on some things, even move if we have to. But if I am 75-80 and something comes up, we don't have a lot of options. We got a little taste of this when I was diagnosed with cancer 2 years ago. I handle the finances and we had a healthy emergency fund, though my husband thought I was an over saver and insecure. Well, that "over saving" paid for housekeepers, a dog walker, new clothes as my body changed, gasoline for all the traveling, the parking, it even paid for some overnight stays at a hotel near the hospital ( it is 60 miles/90km from where we live ) and countless other things. During this time, we contributed to one retirement but did not do other saving. It was really nice to have that option to spend and not worry about it. Now we will get back to maxing everything out..and rebuild our emergency fund. At 70, that just wouldn't be possible. So I want to go in with as big of a cushion as possible.

lyn*

(website)

Veteran

Rae, I'd be very careful about a rental property - one of my colleagues is renting out a place right now and unfortunately, someone broke in and trashed the place. The person who owned it thought it would be a good investment property (nice area) and did all the right things (rented to a responsible person), but man, some things you just can't account for. There is now an extra window in the form that someone punched out the wall. It is quite an unfortunate mess.

Suz

(website)

Veteran

I think there is probably a middle ground. Given that we have health care in Canada and I agree that your pension is not likely to disappear, maybe you and DH can agree to find a way to invest or save part of the money that you'd like to sock away...while keeping another part for current needs or desires.

Since you and DH are going to retire young, I am wondering if one or both of you might find second careers at that point. For me, it would be too early to stop working...but then I work creatively, which is perhaps a different thing. I mean, my work brings me fulfilment. (Even my paid work does). I suppose it is possible you might be looking for that fulfilment in volunteer work, if you could afford it, and it would be nice not to have to choose between an unfulfilling by necessary post-retirement paid job and one that might be meaningful to you, even if unpaid or poorly paid.

Just to throw another spice into the pot!

Angie

(website)

Fashion Stylist

I definately believe there is a thing as TOO MUCH savings. Life is short. When you loose someone very close to you unexpectedly, you think about savings very differently. You have to live your life NOW - and not for the future. You can't take your money with you when you leave this earth.

I sound very extreme, and I want to sound that way. Debt is a bad thing, but so is saving too much for the future at the expense of living your life right now.

Raisin, it sounds like you have a great handle on what needs to be saved, so rest assured you are giving this enough thought and action

Glory

Veteran

I think you should consider some savings outside of the benefit plan. I would speak to a financial advisor to determine the amount. Also you should look at medical and drug benefits to determine whether you could purchase insurance for these once retired. Medical in canada is looked after to some extent but not drugs or dental.

cheryle (Dianthus)

(website)

Veteran

Just as background, I am an accountant by profession and have worked for the feds for 25 years primarily in financial management with over 12 years as a senior finance officer for the RCMP (D Div).

If you or your spouse plan to stay with the force until you hit the 25 year mark, your pension will be fully indexed to keep pace with inflation. That is what makes the pension plan enviable and why it is often referred to as gold-plated. I, too, fell into the trap of worrying that we need more, more, more. I recently went to the PWGSC sponsored retirement planning workshop and the financial adviser discussed the fear that results in people postponing their retirement and reducing the number of years they have to enjoy life without the restrictions of employment needlessly. I ran the numbers one day after the course and realized that not only did I not need more money to live quite comfortably but my partner could retire a few years earlier than planned since the penalties wouldn't be enough to impact quality of life. He works in the private sector so doesn't have our lovely pension plan.

A rough calculation shows that a 60% pension results in approximately 80% of the net pre-retirement income. Assuming that you pay off all of your debt before you retire and considering that your most expensive years are when your children are very young or in university and you won't have that expense, two government pensions should be enough. I will have some capital put away but am not foregoing vacations or any other wants to build a bigger nest egg.

I would suggest you and your husband sign up for the retirement planning workshop. It is recommended that you take it early (30s) and again closer to retirement. It was quite eye opening.

If you haven't already done so, you should check into the online system that allows you to project your pension and net income based on a projected retirement date. You will need your entrust key to access the system but I think the RCMP is one of the member departments. The calculation allows you to select whether you will continue your medical and dental coverage as well.

Feel free to PM if you want specifics on the course.

Caro in Oz

Veteran

I couldn't agree more with Angie. We all need to find our balance because s*** happens & people can be gone tomorrow. Our savings are only one part of the equation.

marit

Have you read what Garth Turner has to say about maximizing your TFSA? Pretty interesting. http://www.greaterfool.ca/2012/10/28/banking/ He's got a lot more about it if you search his blog. Food for thought.

I wouldn't get into real estate right now. For one, being a landlord is a PITA, and for two, Canada's due for the housing bubble to burst (it's already started). And I personally I would not assume that Canada when you retire is going to look like Canada as we think of it now (re: healthcare and so forth) - that is my politics talking, but I don't think I'm being overly cynical seeing what's happened so far under Harper's gov't.

Krista

Veteran

I have a pension plan similar to yours and my husband is a financial planner who works for a Canadian bank. We are not saving extravagantly above and beyond our pension contributions for retirement - my husband has done the numbers, similar to what dianthus has mentioned (same concept, different system), and we will have more than enough in our retirement to live on. And part of our plan includes an income property. It might be worth meeting with a CFP (Certified Financial Planner) to help you work out a plan that addresses both of your concerns and needs. Balance is key!

giddyup

I agree with Angie and Caro. THere is such a thing as too much planning and saving only for the future. Many people never make it to retirement or die shortly after. Happens all the time. I am all too familiar with life's sudden turns and it does make one realize how important it is to enjoy life in the moment as well. Staying out of debt is very important, as is saving/planning for retirement and emergencies. However, there is much much more than thinking you are working and saving only so that you can retire comfortably. What are you doing now that makes your life extraordinary and enriching for you now or in the near future? For some people, it is having a vacation cabin, or traveling ,others it may be going on several months long sailing adventures with their family,or extended summer road trips, hobbies, you get the picture, whatever it may be..Dianthus has some good advice regarding retirement planning.

bj1111

Veteran

i'm a belt and suspenders kinda gal, especially without the benefit of a pension. the future value of a $40K annual income stream is $1M (roughly if you believe the trinity study). so without a pension, i would have to save $2M to generate the average police officer salary in toronto.

plus, south of the border, i will have to purchase health care on the open market if i retire before medicare age (65). even with health care reform and insurance exchanges, i will pay more than i pay now since i will pay my share and my employer's share.

MsMary

Veteran

I do agree with Angie and Caro to an extent. That is why I have decided not to pay off my mortgage in a hurry (when I get back in my house) and instead use the money for traveling while I am still reasonably young and healthy.

Raisin

Veteran

Great points everyone. I think it's probably more important to have balance than just save as much as possible. I doubt that we will get into the landlord business but it's fun to think about.

Dianthus, thanks for reminding me that yes the take home amount would be a lot more considering we won't be paying into as much stuff. That's something I had completely forgotten about. I do really want to take one of the retirement courses but it seems like people here only do that once they are a year or so away. Seems like it should be done a lot earlier to me. I'll look into in though.

I think I'm much more of a worry wart than DH about this kind of stuff. I know we will do just fine considering the pension and we do already save but I have a hard time getting around the feeling like we could save more. But yes, I think we COULD, but at the expense of living LIFE. So, not fun. I think I need a course in how to stop over thinking things! Ha!

Janet

(website)

Veteran

I think you all can tell by my shopping and travel habits that I'm not exactly a spendthrift who is socking away all our pennies in a hole in our yard.

I do agree that saving for tomorrow should not get in the way of enjoying today, so of course, balance is all good! I was just thinking that Rae, you are so young -- and you plan to retire so young -- that it's a good idea to be in the early habit of saving.

I hear these nightmare stories of being a landlord, and I have to say, yes, I have had to scrub black, tar-like glue off a beautiful hardwood floor, and re-paint walls which a tenant had decided to paint, but only around the outlines on his furniture. But I have been doing this to some degree ever since I was 20, and in my experience the benefits *can* far outweigh the PITA factor. The keys are buying a good solid property in a good area that commands a fairly high rent, and finding and keeping good tenants. Oh, and knowing when a property is really not going to get better to manage (if the neighborhood is going downhill) and selling it while the getting is good -- mom and I did that with a house in the city about ten years ago.

We are really lucky right now, as all three of our tenants are terrific. Especially the one in the little beach house we lived in when we got married -- he is a carpenter and has practically rebuilt the shed on the property to accommodate his tools. He added electric, built shelving, and put in a new window and door. I gladly reimbursed him for materials!

It's not for everyone. Sometimes I have to go meet a repair person at the house, and property tax time is always icky. But hubs and I are both self employed and make our own schedules, which makes it easier. If it is managed like a part-time business, it can work well. We also love looking at real estate, which helps.

Kristin L

Veteran

Thanks for asking this Rae. It's been very informative to read. I'd chip in about retirement, but I don't have an account yet. Once I get my first job after I finish my degree, I'm going to full force in to 401(k)/retirement plans.

Anonymous

Not until my house was paid off. Until then, I'd invest the minimum. Nothing is guaranteed, but your pension plan sounds pretty rock solid.

Karie

(website)

Veteran

I do not recommend relying only on your pension. I put the max allowable into my 403b and DH puts money in his 401k. I want to be able to live like I do now when I retire and not have to live on a lesser amount of money.

DonnaF

Veteran

Raisin;
I've only skimmed through the responses, but I don't think any addressed your and DH's occupation and occupational hazards. IIRC, you are both in law enforcement. What happens if one or both of you become disabled or short of disability are forced to take early retirement? I am assuming the physical demands and requirements for your positions are more exacting and demanding than the basic office position. For example, can you keep your job if you have to take insulin? Or what about PTSD?

Just a thought; I don't have the answers. I'm better at asking questions!