My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Friday, November 12, 2010

Smoke & Mirrors - Is Retirement as Costly as We are Led to Believe?

I recently attended a course taught by David Trahair called “Smoke and Mirrors”. David is a well known author and proponent of various retirement and investment strategies that contradict accepted conventional wisdom. Some of David’s against-the-grain thoughts are (1) GIC’s are a better investment than stocks (2) RRSP’s are not the Holy Grail and (3) you need substantially less to retire than the investment community purports. Although I may disagree with some of the above, I nevertheless find several points David makes about retirement to be poignant and I discuss them below.

David attempts to dispel the financial planning “myth” that you need to accumulate enough funds at retirement to provide for 70% of your current yearly income, i.e.: if you make $100,000 a year you will need $70,000 a year in retirement and a retirement fund of at least $1,400,000. David feels the mythical 70% number is in most cases significantly in excess of what will be required at retirement.

David is a proponent of eliminating all debt pre-retirement. This ensures that at retirement you are not paying out funds and depleting capital, but rather living off the capital. He feels that the reduction of debt has a secondary positive offshoot in that during your working life, your need for disability insurance is reduced. The rationale is that since repaying monthly debt is the largest cost for most people, as that debt is reduced, your need for disability insurance that would cover these debt payments is also reduced.

David feels that in addition to the significant reduction of mortgage and other debt payments in retirement, retirees will have additional cost reductions as dependent children become self sufficient, RRSP or pension plan contributions cease, and tax burdens and automobile costs decrease. David feels that it is important to plan to purchase your last car before retirement and drive it a number of years in retirement.

As David would admit, one size does not fit all. I would suggest your costs in retirement will be far less than 70% if you don’t plan to travel, help your children buy a house, join a golf course, etc. That is why it is vital to have a financial planner who takes all your future needs into consideration and reviews your pre-retirement spending habits.

This is where I agree totally with David: you need to have a financial plan and take charge of your future now. Review your monthly spending and determine what can truly be trimmed now and what could be trimmed in retirement.

China- Communist or Capitalist?

I was recently in Beijing and Singapore and will blog about both these countries in more detail in future blogs. I am having trouble reconciling China and its economic growth. As someone who had never visited China, I did not know what to expect in Beijing. What I found was a bustling city with hundreds and hundreds of office buildings, Cartier stores, Hugo Boss stores, etc. I met several US businessmen in my hotel who told me China is a great place to do business, yet the typical Chinese citizen does not appear to have benefited in equal amounts from this “capitalistic” growth and wealth either in lifestyle or wages. It is all very confusing for someone who does not have intimate knowledge on China, its politics or its change in attitude towards commerce.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.


  1. "Some of David’s against-the-grain thoughts are (1) GIC’s are a better investment than stocks"

    Wrong. GICs are high risk, low return investments considering that America will need to monetize its debt.

    Your goal as an investor should be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.
    -Warren Buffett

  2. Skuj, you are not the only one who is concerned about the US monetizing its debt. I have heard that concern for over a year and have been awaiting the supposed resultant increase in interest rates that has not yet come. However, debt monetization is a topic that flies over my little accountants brain and probably unfortunately, also over the head of those actually creating the fiscal policies.

  3. ...except for Ron Paul. Viva la reloveution!

  4. Interesting comments about how much you NEED in retirement. As a Vancouverite, I am aware that a significantly higher portion of my income is consumed in housing compared to places like Winnipeg or Saskatoon. On a recent trip I was startled to see that my home is almost twice as expensive as the equivalent in Regina. This is a significant financial difference that is never considered in these articles for reasons that are unknown to me.

    For example: a Winnipegger who pays 30% of their income on mortgage, needs 70% of his income once the mortgage is gone to live the same, but a Vancouverite who pays 60% of his income on mortgage, will need 40% to live the same once the mortgage is gone. This would appear to hold true whether you are retired or not.

    70 vs 40% is a LOT of difference. For all your other expenses, I'd assume that difference in cost of a jug of milk in Vancouver vs Winnipeg is tiny in comparison, so after that they rule could be universally applied for the remainder. But, that first piece of the puzzle represents a big $ difference.

  5. This article was meant to be more conceptual in nature, but you raise a very valid point; where you retire can drastically alter your financial needs and must be taken into consideration. Thanks for raising that point.

  6. Health insurance for early retirees has been proposed by the President. Still, you need to take care of your health while you're young to enjoy your savings in the future.

  7. Your comment on the importance of having a financial planner to plan your pre-retirement spending habits.

    I would add “good” beside the words “financial planner” as there are many financial planners who are really order takers. When it’s time to make RRSP contributions they will sell you all the strategies to put the money into the various portfolios, but when you want retirement advice they shy away and ask you to refer to a tax accountant.

    Is there any requirement that financial planners are required to provide such service especially to those approaching retirement age, to enlighten them on applying the various benefits of this “golden year”.

    Are they liable if they do not provide the advice and is this instituted in their code of conduct, especially for a CFP?

  8. Hi Anon,

    I don't know the specific rules for CFP's. You are 100% correct, I should have added "good" in front of financial planner. Any financial planner that refers you to an accoutant for retirement planning should be your ex-planner the minute the words come out of their mouth. That is part of their job in my opinion. Now, whether there is an extra fee for that service is another issue.