Losing Ground: Investing For Retirement

Every child had a pretty good shot
To get at least as far as their old man got
But something happened on the way to that place
--- Billy Joel, Allentown

When my son was 3 years old, we noticed that our coin jar was getting lighter and his piggy bank was gaining weight.
"What are you doing?" I asked.
"Saving for retirement," he replied.

Jeevan is now 12 and still careful to save his money. He bought his first term deposit recently. Not everyone starts saving so young. Why did he? He was alarmed by my tales about people I came across who

• had no pension plan
  
• lost money because of poor investments
  
• were working but not saving for retirement
• dipped into RRSPs due to job loss, disability or illness
  
• didn't repay money they took from their RRSPs to buy a home
  
• retired but didn't realize they'll likely run out of money
• retired, ran low on money and were forced to work again
  

Monkey hear, monkey fear, monkey save. We didn't need Grimm's Fairy Tales. If you're alarmed by the fear of running out of money during retirement, join the club.

As you might guess, there are publications geared at institutional investors and pension plan sponsors. The current issue of Canadian Investment Review looks at the typical Canadians instead.

Company Pension Plans
If you're among the 40% of the workforce with a company pension plan, you're fortunate. Money is being set aside for you. Ideally, you'll have a plan that pays you a specific lifetime benefit based on your years of service and your salary around the time you retire (defined benefit plan). Many employers prefer the less-expensive defined contribution plans, which transfer the investment risks to you. As with RRSPs, you make the investment decisions and your pension income depends on the value of the savings.

On Your Own
The remaining 60% have no company pension plans. Do they have the discipline to save?

I see small business owners who struggled for years and are now seeing some success. So they start the saving game late. Or spend instead of saving. It's their way of rewarding themselves for toiling in the lean years. They think their businesses will survive and become increasingly successful. So their plans to save slip into the future.

The study, Losing Ground, by Keith Ambachtsheer (University of Toronto) and Rob Bauer (University of Maastricht) shows that investing in mutual funds can chop retirement income by 22% to 64%, depending on what the fund charges.

We'll each have different solutions such as investing "better" (whatever that means to you), saving sooner or buying more lottery tickets.

So put away Grimm's Fairy Tales. Turn out the lights. Think about Losing Ground before you retire.