By James Kwantes
VANCOUVER — The names of Tony and Plu Dorcey's boats — Carpe diem and Tempus fugit — capture their approach to life and retirement.
Seize the day. Time flies. Boating featured so prominently in their plans, the Dorceys borrowed money to buy one vessel in 2003 and the other in 2006.
What they didn't bank on was the 2008 stock market crash, which blew a hole in their investment portfolio just as Tony was about to retire from his job as a professor at the University of British Columbia.“There was great uncertainty about whether markets would come back,” said Tony, 67. “Now we know they did, but at that point, we didn't. It was scary, it was such a big drop.”
The couple rode out the market crash and benefited from the subsequent rebound, but the financial shock prompted them to navigate a change in direction. Tony decided to stay the course at UBC. He's teaching two classes this semester and will retire in December.
“I was fortunate that I could decide to continue, that I had that option,” he said. “For the people who retired the year before and didn't have that option, they were in a much worse situation.”
Plu, 66, had already retired from her job as a kindergarten/Grade 1 teacher. The couple have good pensions through work, and they're relying on those and the Canada Pension Plan for most of their retirement income stream, as well as about $150,000 in RRSPs.
Tony's UBC pension is invested in a conservative, balanced fund with good management, he said, and low fees.
But the financial crisis sharpened the Dorceys' focus on personal finances, including their debt: They owed $250,000 for the two boats.
Debt will be a retirement reality for many boomers, according to the Horizons Retirement Report, a survey commissioned by Rogers Group Financial.
Four out of 10 Canadians expect to owe money when they retire, the survey found.
One in six will have more than $50,000 in debt and one in 10 will hit 65 with more than $100,000 in debt.
The statistics don't surprise Clay Gillespie, managing director of Rogers Group Financial, given increasing debt levels have become commoner among his clients in recent years.
But the financial adviser still finds debt levels among boomers nearing retirement “pretty scary” — even if much of the debt stems from people taking equity out of their houses so their kids can afford pricey Vancouver real estate.
“Ten years ago I had nobody with debt,” he said. “Going in there with debt introduces a curveball that's difficult to deal with.”
Instead of capitalizing on low interest rates by racking up debt, boomers should seize the opportunity to tackle the principal, Gillespie said, since the portion of debt payments that goes to interest will only increase as rates rise.
Those who are supporting or expect to support aging parents — one in four retiring Canadians, according to the survey — should factor that into retirement planning, Gillespie said.
MONEY THE MAIN CONCERN
That recommendation, of course, assumes people have a retirement plan.
But according to the Horizons Retirement Report, fewer than half of Canadian boomers have a written financial plan.
It's no surprise, then, that many boomers are more worried about their finances than their health.
“Not knowing how much income you're going to have in retirement, or how much you can spend day to day, has got to be pretty stressful,” Gillespie said.
He advocates being prepared for retirement five years ahead of time, including having three years of income in cash or cash equivalents as a buffer against a market downturn.
“You always want a cash return in there, because you never want the market to dictate income,” he said. “If the market's down and you're withdrawing money, you're digging into the portfolio.”
Rising life expectancies make boomers particularly vulnerable to high debt levels, Gillespie said. For a couple aged 65, there's a 59 per cent chance that one of them will reach 90 and a 30 per cent chance one of them will reach 95, according to the Society of Actuaries.
As an investor approaches and passes 65, more of their investment portfolio should be shifted from equities to fixed income products such as bonds or dividend-paying preferred stock, according to Gina Macdonald, a fee-only financial adviser with Macdonald, Shymko & Co.
A good rule of thumb, she said, is that the percentage of fixed income in an investor's portfolio should equal their age — so a 65-year-old should have 65 per cent of their investments in fixed income.
New retirees with a higher risk tolerance can bump up equity levels to the 40 or 50 per cent level, she said. But an investor's experience and ability to handle market drops are key factors in determining how aggressive their asset mix should be.
“Market experience is a factor when discussing asset mix and focusing on what level of downside risk an investor can handle emotionally and financially,” Macdonald said. “Anyone can handle positive market returns.”
The expectation of living longer is one the Dorceys have worked into their retirement plan.
“Adding on another five years and having enough money to be able to do that makes a great deal of difference. So the downside of living healthily is that it improves the odds that you're going to be one of those that need more money,” Tony said with a laugh.
For many boomers in Canada's most expensive housing market, converting the equity in their homes into retirement income is part of the equation. The Dorceys downsized from a house into a condo in 1992.
While the Dorceys had planned for their retirement, the 2008 financial crisis prompted them to review spending habits “in a way we'd never done before,” Tony said.
He decided to sell his car — Plu had sold hers when she retired — so they now rely on their bicycles and public transit to get around locally.
They also cut back on eating out and various small purchases that, added together, made for significant savings.
“It's surprising how eliminating a lot of little things all piled up to be quite significant,” said Plu, who tracks family spending.
The couple, who have a 35-year-old daughter, would have liked to retire debt-free, but they don't regret investing in the boats.
“The joy and pleasure we've had out of (boating) is worth a fortune,” Tony said.
Their sailboat is moored in False Creek and they use the steel touring motorboat, which is moored in the French Mediterranean, to tour the waterways of Europe.
“We were at a stage in life where we felt we could take on a very new challenge like that, with lots of steep learning curves,” said Plu. “We've really enjoyed the life it's given us, and it's also given us the confidence to try some other things.”