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Retired Money
By Jonathan Chevreau on February 21, 2024
Estimated reading time: 7 minutes
RETIREMENT INCOME FOR LIFE: WHY CANADIAN RETIREES LOVE FREDERICK VETTESE’S BOOKS
AND HIS PERC
By Jonathan Chevreau on February 21, 2024
Estimated reading time: 7 minutes
What’s new in the latest edition of Retirement Income for Life? A long-time fan
digs into the book and shares what retirees should know.
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Background photo by John McArthur on Unsplash
Since I turn 71 soon, my attention is naturally becoming focussed on the
inevitable question of what to do when my registered retirement savings plan
(RRSP) must be collapsed. Do I keep it as a registered retirement income fund
(RRIF)? Or should I convert it into an annuity? Maybe I do a combination of
both. I will focus on the mechanics of the RRIF conversion in an upcoming
Retired Money column, as that will likely be my choice for most of my retirement
savings. And, a year down the line, that will likely be the choice of my spouse.
In the meantime, I have been reading the new third edition of actuary Frederick
Vettese’s excellent book, Retirement Income for Life: Getting more without
saving more. In addition, I have been putting Vettese’s PERC (personal enhanced
retirement calculator) through its paces, using our family’s data.
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THE MANY EDITIONS OF RETIREMENT INCOME FOR LIFE
I reviewed the previous (second) edition of this book for the Retired Money
column back in October 2020: Near retirement without a Defined Benefit pension?
Here’s what you need to know. And on a personal note, I know through a few lunch
chats over the years that Vettese and I are almost the same age, within a few
days. And MoneySense also looked at the first edition two years before that with
this article: A guide to having retirement income for life.
Vettese, as he prefers to be called, tells me the biggest change in the third
edition of Retired Income for Life (ECW Press, January 2024) is “the recognition
that inflation may rear its ugly head again. Hence, we need to avoid inflation
risk in addition to longevity and investment risk.”
The preface reads that after “playing dead” for 30 years, “we can no longer take
low inflation for granted… Retirees with more or less fixed incomes cannot
ignore the prospect of future spikes in the inflation rate.”
As a result, Vettese has rethought the five “enhancements” outlined in the older
editions. Those five strategies are:
1. Reducing investment management fees
2. transferring investment risk to the government
3. transferring even more risk to insurance companies via annuities
4. using his PERC
5. and having a backstop, such as using home equity to supplement retirement
income through vehicles like a reverse mortgage.
According to Vettese: “Some of those enhancements have become even more crucial,
while one of them is on the verge of demotion.” He’s referring to annuities,
which offer little in the way of inflation protection, he clarifies.
WHAT IS PERC? AND HOW TO USE THIS CALCULATOR FOR RETIREMENT PLANNING
Since we’ve not previously devoted an entire article on MoneySense to the PERC,
most of this column will look at that. Note that PERC is in itself the fourth of
Vettese’s five “enhancements,” with chapter 15 of the new edition of the book
devoted to it, entitled “Using PERC.”
Vettese developed the calculator when writing his first edition back in 2018.
Take it for a test drive, at no charge, at perc-pro.ca. (Another generous offer:
Anyone who buys the print edition of Retirement Income for Life can get a
travel- and commute-friendly free e-book version by emailing details of proof of
purchase to ebook@ecwpress.com.)
Vettese emphasized two points about PERC in an email to me:
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1. “Mine is probably the only calculator that assumes one’s spending does not
quite keep pace with inflation in our later years.”
2. “My calculator is one of the few out there that isn’t sponsored by a bank or
investment company. I’m not selling anything other than the best income
estimate possible. Also, it is the only calculator to my knowledge that
explicitly shows how much better you do if you buy an annuity or defer CPP
(Canada Pension Plan).”
DEFERRING CPP: SOMETIMES PEOPLE SHOULDN’T WAIT UNTIL AGE 70
For me, deferring the CPP ship has already sailed. I took it at 66 when my wife
retired, although she waited until 68 to take hers. We had initially planned for
her to wait until age 70, but we did it sooner because Vettese’s articles argued
for an exception to his usual recommendation to wait until age 70. In 2022 and
in 2023, he suggested that those on the cusp of turning 70 might take CPP a year
or two early, owing to the high inflation adjustments Ottawa made to CPP and Old
Age Security (OAS) in those years.
But partial annuitization is very much still a possibility. My wife’s locked-in
retirement account (LIRA)—which she opened when working—is likely to turn into a
life income fund (LIF) sometime this year or the next. She has no employer
pension, and I have only what I have dubbed a “mini” pension and an even smaller
“micro” pension from previous employers.
HOW TO USE ANNUITIES IN RETIREMENT
So, I’ve always read, with interest, Vettese’s views about annuitizing at least
part of RRSPs once they must be wound up at the end of the year one turns 71. At
one point he suggested annuitizing 30% of RRSP assets, though the current book
lowers that to 20%. (See also this Retired Money column on that very subject,
written early in 2018 entitled: RRIF or Annuity? How about both?)
Incidentally, the third edition of the book also mentions a couple of
annuity-like innovations that weren’t available when the first two editions were
published. In chapter 16, entitled “Can we do even better?” Vettese described
Purpose Investments’ Longevity Pension Fund and Guardian Capital’s Guardpath
Modern Tontine Trust.
He says that instead of annuities issued by Canadian insurance companies, these
two new longevity financial products are offered by investment companies, thus
chiefly use stocks and bonds for income.
One difference is that, unlike with traditional annuities, the income is not
guaranteed. Also, there are no survivor benefits. He concludes the chapter,
stating both are “like a less nerdy version of annuities for retirees prepared
to take a small amount of risk.”
BUT BACK TO PERC
You can try a stripped-down version for free and with no obligation. In fact,
you’ll have to print out the results because of privacy concerns: “The data from
PERC is stored, but it’s not attached to anything that could reveal one’s
identity,” he told me.
If you want the full treatment with multiple scenarios, the price for a one-year
subscription to a Canadian customized PERC is a reasonable $135 plus tax. You
can enter the basics of your financial situation and that of your spouse (which
Vettese recommends) and, in less than a half an hour, the PERC generates a
summary of your likely future retirement income. You enter pre-tax amounts for
pensions and other income and PERC handles the tax side of it automatically.
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RETIREMENT INCOME INCLUDES WORK INCOME FOR ME
Obviously, I’m not going to divulge my family’s personal information in this
column. But after using Vettese’s PERC, I’m certainly left with the impression
that I am still working because I choose to do so, albeit on a self-employed
basis. As one fully retired friend quipped to me the other day, “You enjoy it.”
I guess I do.
But as I have said before, even if you enjoy working, at some point either
clients or employers may make the decision for you to end your working days.
Once that happens, whether gradually or suddenly, it’s nice to have a firm grasp
of where your retirement income is coming from and how much can be counted upon.
The PERC does just that.
READ MORE RETIRED MONEY COLUMNS:
* Are GICs worth it for retirees?
* Tontines in Canada: Moving from theory to practice as a solution to our
retirement crisis
* How much money do you need to retire in Canada? Is it really $1.7 million?
* Inflation a scourge for retirees? Ottawa’s silver lining(s)
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on
Reddit Share on Email
ABOUT JONATHAN CHEVREAU
As MoneySense’s Investing-Editor-at-Large, he is also author of Findependence
Day and co-author of Victory Lap Retirement. Reach him at
jonathan@findependencehub.com, where he is the founder of Financial Independence
Hub.
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Δ
1. Mitchell Seward says:
February 24, 2024 at 6:22 pm
Your article says “You enter pre-tax amounts for pensions and other income
and PERC handles the tax side of it automatically.” What do you mean by
this? When I tried PERC, the explanatory text says “all income amounts in
the chart are before income tax.”
Reply
2. Thomas Legal says:
April 15, 2024 at 7:22 pm
When will the third edition of this book be available on Audible?
Reply
3. Geoff Liogier says:
May 24, 2024 at 11:13 pm
I read “Retirement Income for Life” several years ago and used the PERC tool
in it’s original form. The original tool was one of the best free online
tools I found to run scenarios and get useful information. I was
disappointed when I recently used it again and found the new tool has been
significantly reduced in usefulness. It’s unfortunate that the tool has been
stripped of its value and become an advertising teaser for a paid service.
Reply
4. Maggie says:
September 3, 2024 at 4:26 pm
The Perc calculation used to show stacked bar charts colour coded to show
the source of income. The current no fee version is completely stripped
down, and only shows line charts. The colour coded bar charts are in the
premium version only. Disappointing.
Reply
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