How's your pension or savings going?
All you have heard to date is that you have to save enough to pay for your life as you age. This just is not possible for most people. Many boomers have teen age or school age kids AND elderly infirm parents. Saving enough and then making a killing in the market is an insane idea and it never happens for regular folks. It's impossible to fulfil this idea. Interest rates are at historic lows. The markets are controlled by traders. The underlying economy is a shambles. Traditional pensions are a thing of the past.
So what to do?
It is to invest to REDUCE your day to day costs and to INCREASE your ability to make a living. And to invest in the next generation so that they can help you. This is my pension plan in outline. So let's look at the details.
Personal Costs
Avoid being ill. Especially avoid developing a chronic illness. The average man in Canada is disabled by illness by the age of 65 and lives for another 10 years. He depends on his family and the state to suport him. This drives cash costs, a huge burden on your family and on the state. You may not have the cash, the family or the state to look after you anyway. This is also true for the average woman, the cycle start 5 years later.
In the US Fidelity predict that the average US retired family will spend nearly $250,000 on health costs in the last years of life. No one has that kind of savings!
Let's make this real.
My mum has been in a nursing home for 14 years ($40,000 a year) and has had an annual drug bill of $3,000 a year. That's nearly $500,000. My dad's pension fortunately has covered this. Without it I dread to think of what this would have meant to me. I would have become a prisoner to her. The last thing I want is to be a burden to my kids. The state will not be able to pick up the tab when so many boomers are in the their older years either.
So becoming Healthy is rule #1. That is why I have taken charge of my health and why this first step is so important for all of us boomers.
You can read all about how to do this in You Don't Need Medicine to Get Healthy
Reduce your structural living costs.
Energy - Home The #1 exposure that we have is to energy costs. So the size of our house and the way we heat it is key. Next to that is our need to get around. All of this is connected to the price of oil and energy. Already on PEI where I used to live, the average household heating bill is more than $3,000 a year. In a typical winter with a 2.500 square foot house, we would fill the tanks in October, January , February and March. At $800 a fill at current prices, that is about the average. We make this payment from our after tax income.
There are a number of ways around this. First of all, move to a smaller house with a smaller footprint. Less to heat and to maintain. Less to pay in taxes too! For that bill can easily be $3000 a year. Less to insure.
Then insulate like crazy and install the most efficient system you can. Supplement with wood if you can.
We have done this and we have cut our heating bill to $700 for the whole winter! We now have a hedge against future increases in energy costs too. We spent about $25,000 to get this improvement. Looks like a lot? But now look at the return and compare this to putting $25,000 in the market or on deposit.
That is an annual after tax return of nearly 11%. Government of Canada 5 - 10 year bonds yield 1.4%. And that is after tax. If oil prices go up, my yield goes up. If I want to sell my house, I can make this part of the price. It's a win win win for me and for you.
The key is to see this as an investment not as just a cost.
Energy - Transportation
How much does it cost to own a car? How long will you be able to drive a car?
Each car drives a lot of structural cost. It's not just the gas, but the maintenace, the insurance and the depreciation + parking etc. Estimate that a car will cost you at least $10,000 a year after tax!
So where you live is an important structural question. I live in a small village. All the shops are within a walk or a short bike ride. We only need one car and that a tiny one. If we need more, we rent. If I have to get to Montreal, I often take the express bus that has wifi, and takes an hour and costs the same as the gas for the trip in the car.
If I need a new car in the future, I will buy a second hand one. That takes 40% of the depreciation off the table.
This has not been a big give up for us. If we really need a second car, we rent.
Finally, one of us may not be able to drive in our late age. By choosing to live in town and in walking distance of shops and life, we prepare for that too.
You can find much more on how to resuce your costs in my first book - You Don't Need a Job
Time for Cash
As our costs drop, I don't need to struggle to earn more and so I have more time. Time is the most vital part of this new freedom.
I can trade cash for time. Convenience costs. Time is free.
We do the gardening, not a service. With a small lot, most of the work can be done by hand too. That is good for our bodies and for the pocket book.
I can add wood heat to the mix too.
It gives us time to cook all our meals. This is both good for us and also cuts our food bills dramatically.
Tribe Versus Seniors Home and Child Care
Will state paid seniors homes exist in 15 years? Will it be possible for working mothers to send their kids to day care?
A seniors home, apart from being a living death, cost today about $35,000 a year. They just wont be around in 15 years except for the rich. You and the state will no longer be able to afford them. On PEI with 12,000 women over 85 at that time, the costs will exceed the current TOTAL for ALL health care today.
With incomes being squeezed for all the young, how will they be able to work and have kids. Child care is also about $30,000 a year for many now. Few will be able to earn that.
So what to plan for?
I see no alternative but to bring back the Tribe. So this again, means choosing your last home with great care. We are 1 hour from our son and his family and our son in law's mother also lives in the same village aswe do. The two grannies already help each other out a lot. Our son is here most weekends and we took care of his 1 years old for 9 nights that enabled him to get a much needed break. This summer we will have our daughter's kids for 2 weeks too.
We are laying the foundation for the tribe to come back.
I don't see another way. The only way that the old and the very young can be accomodated in the next 15 years is to come back together. Not an easy thing to do. We are so unused to this way of living. So this is why doing it step by step helps.
If we can get this right we are looking at saving up to $100,000 after tax a year. Or at least reducing the risk of a break down in the family at both ends. I don;t se an alternative - do you?
Bottom Line
There is no way that most Boomers can save and invest enough money to live as we do now over the next 20 years. Nor can we expect the state to be there to help. By 2030, at current rates , the alzheimers costs in the US alone will exceed the budget for Medicaire.
We will be pushed back on ourselves. But on our own, we are not strong enough.
So the only alternative that I can see, is to restructure our lives. We have to create new habits of helping each other in the family so that, as we get older, the new normal is to do things with each other. The new normal is to share costs and even space.
If you don't have kids, then I suggest looking to your closest friends and start to share your lives with them.
This fall I will write a book about this - You Don't Need a Stockbroker to Retire when I will expand on thse ideas. What do you think so far?
