I just got off the phone with my mom, 84 year old retiree and widow who fortunately has more sense than half the investment bankers in the Canada. She only invests in fixed income, government guaranteed bonds and occasional GICs or blended equity products but only if her investment principle is guaranteed.
Of course, the returns are dismal. Even my mom, who has acquired a knack for playing the various banks and credit unions she deals with against each other to wring out an extra 25 or 50 basis points, is eeking out 2.5% or 3% annually. But she’s pretty astute and prudent and she’s done what probably 99% of our generation’s seniors will find impossible: make a nest egg built up by a factory worker (my dad) sustain her through retirement without cannibalizing the principle.
But she always tells about one scheme or another the half-wits at the bank are pushing on her. Over the years these could have been compiled into a textbook of how to ruin your retirement savings:
When my dad died (2005) they came at her hard to cash out all the bonds and GICs and go into mutual funds consisting largely of North American equities. She didn’t need me to tell her it was a bad idea, she told them to get lost.
Some of her friends were not so lucky, upon finding themselves widowed and alone, listening to the same advice they cashed out of bonds and GICs and rolled into equities just in time to be savaged by the Global Financial Crisis in 2008.
Today they are telling my mom the same thing: “Interest rates are dismal, stocks are soaring, let us get you into U.S. stocks and we’ll make you way more money!”.
This is negligence on all sides. For one thing, anybody knows (or should know) that by the time you are sliding into retirement or already retired, your stock market days should be largely over. It is not supposed to be about making money anymore, it’s supposed to be about protecting your principle as well as living off your fixed income..
If there are any equities in the picture, it should be because they are solid dividend payers obtained at a reasonable cost-basis, perhaps in earlier years or part of an employment / retirement package.
Alas, we live in an age of centrally planned economies and grotesque market distortions. This is probably a sleeper crisis of a sort: seniors unable to derive living incomes off of their savings because of artificially suppressed interest rate are conned into buying dubious financial products my banking “advisors” who think that Efficient Market Theory is proven conventional wisdom. I mean really, mutual funds? Give me a break.
Fortunately my mom is skeptical of all these financial snake-oil salesmen and she has the discipline to stick to her plan, even through these awful returns.
Many seniors are not so lucky, and especially in the trying times following the death of a spouse they are particularly susceptible to bad advice from bankers who couldn’t put up an absolute real return if their lives depended on it (but they can rack up commissions on crappy financial products like nobody’s business).
I sent my mom this link to a Chris Martensen podcast on the eerie topiness of financial markets right now, and the need to maintain investment discipline. In her own way she already knows all this, but it’s a good read/listen.