One of the best parts of my job is when I can help people with their retirement plans. Unfortunately too often, I get humbled from these face to face meetings because I realize that not all retirements happen with a happy ending. I recently met with 2 people that asked me to share their stories with others so that younger people could avoid the mistakes they made in neglecting the process of retirement planning.

What is retirement planning?

The process of looking ahead into the future to make the future more predictable. From a financial perspective its a matter of looking into the future to see if you will have enough income and assets to carry you through when you no longer get a regular paycheque from work.

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In some respects, retirement planning is really about looking into the future to see the future you.

Milly’s Group RRSP matching plan

Milly is 63 and has been working for the same employer since she was 23. She is tired of working but is sad that she cannot sustain her lifestyle without her paycheque from work. Through work, Milly had a Group RRSP matching plan where the employer would match her contributions up to 5% of her regular pay.

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One would imagine for 40 years, she would have amassed a significant retirement nest egg. Unfortunately, that was not the case. Milly has only $90,000 in her RRSP account. Why? Because she raided her RRSP account too many times over the past 40 years to fund her lifestyle.

Simple retirement calculations

When we went through some simple calculations, I told her her $90,000 would give her somewhere between $300 per month to $650 per month of retirement income depending on assumptions around investment returns, withdrawal rates, and longevity. If we add government paycheques like CPP and OAS, she would have about $1500 to $1800 per month before tax. After-tax that would be more like $1374 to $1600 per month. That was clearly not enough to replace her current take-home pay of about $3300 per month.

Milly should have had hundreds of thousands of dollars in her Group RRSP plan at work. Today, Milly, she had a strong regret for raiding her RRSPs. Most of the time it was for things she thought was an emergency at the time but in looking back, she could think of many situations where it wasn’t really an emergency. Every time she took out a few thousand here and there, she didn’t think it would matter too much in the long run. Sometimes real emergencies came and she took out bigger amounts of ten thousand or more. And finally, these withdrawals became ‘regular’ rather than “occasional” occurrences. When I told her that many Group RRSP plans restricted access to workplace RRSPs, she wished that her employer restricted access to protect herself from being her own worst enemy.

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For me, it’s kind of like the money jar or bowl that people have at home. It’s common to throw change into the money jar but the money jar never seems to completely fill because we are always pulling money out, especially the twoonies, loonies and quarters. A group RRSP with withdrawal restrictions is more like a money jar with a lid.

Lessons from Milly

At the end of our meeting, Milly was going to try to live on $2400 per month and save $900 per month just to see if she could do it. If she could, there was a chance that she could retire in 3 or 4 years.

As we finished our conversation, Milly switched gears and started to talk about her 2 kids. She reached across the table, squeezed my hand, stared me in the eyes and begged me to talk to her kids. She begged me to share her story with others so that others did not make the same mistakes she did along the way.

We had a little hug and I promised to write this story and meet with her kids.

Think about your future you

When we look in the mirror, we see a reflection of our current self. What’s not easy is trying to picture what we might look like 10, 15, 20 years or more into the future. As I mentioned before, retirement planning about trying to see the future you and in simple terms understanding how much money you will need to have to carry out a perceived lifestyle.

The whole point of RRSPs is they are Registered RETIREMENT savings plans. They are not Registered TRIP TO HAWAII plans or Registered RENOVATION plans or registered PAY OFF CREDIT CARD plans. So, the next time you want to withdraw money from your RRSP, remember the future you:

• The next time you plan on raiding your RRSPs, for an emergency remember that the definition of emergencies has changed. For some reason trips to HAWAII are now emergencies or necessities (but they really are not!)
• The next time you plan on raiding your RRSPs, calculate how much you are knocking off your future retirement. Taking $2500 our of your RRSPs is like taking away $10,000 to $15,000from your retirement assets 25 years from now.
• The next time to plan on raiding your RRSPs, remember that your RRSPs are not money jars
• The next time to plan on raiding your RRSPs, remember the story of Milly and ask yourself if you want to be in your 60’s living in regret because you are tired and you can’t retire.