As a long-time investment practitioner with almost two decades of relevant pension expertise, I’m sometimes asked how I planned and saved for retirement. Many are surprised that I wasn’t using traditional retirement vehicles, and many others I know who are retiring haven’t either. But what are the views of a younger generation of professionals?

Recently I spoke with Tim Usher-Jones, CFA, who at 30 belongs to a younger generation of investment professionals. He is vice-chair of CFA Society Toronto’s University Relations Committee and is also assistant vice-president and Canadian Zone Manager with Chubb Insurance. I asked Tim if he is preparing for retirement as most recommend, and he simply replied “not.”

Below, we both share what we’ve done in the past or are doing currently. As we’re both “in the game” and often think about retirement planning, this disconnect seemed particularly interesting, especially as I’m 60 and about to retire, and Tim is where I was 30 years ago. However, we discovered our mindsets are similar.

This article isn’t targeted at those who lack knowledge, sophistication, or ability. It’s more of a discussion among practitioners. Retirement planning is a long-term exercise, and like all investing, the power of well thought-out plans, compounding, discipline, and a bit of luck, is the difference between success and something else.

The View From 60 – Peter Jarvis, CFA

PETER’S SIX-POINT PLAN FOR RETIREMENT

Here are the six things Peter plans to do first, now that he’s finished full-time work:

1. Drive Highway 1 from Vancouver to Los Angeles and then back to Toronto via Las Vegas.
2. Take an extended ski trip in Western Canada.
3. Sell our house and move to Huntsville and rent a condo in downtown Toronto.
4. Seek volunteer opportunities.
5. Go back to school, refresh my French, and go back to university to study media and telecommunications.
6. Learn how to use all my Apple gadgets.

My first retirement asset was full life, a form of life insurance more commonly known as whole life or permanent life. Family health history was an important factor in making this decision, and several heart-related issues later, I’m glad I did it. It’s a terrible investment for the first 10 years, but it improves as the decades go by. My full life policy came with options to increase insurance coverage without a medical exam, policies that grew in coverage over time, and a few tax advantages no longer available. Worth about $500,000 in cash and automatic loan value, and with about $2,000,000 in coverage, this is a key foundational piece of my final estate and retirement planning.

Next, I started buying full life insurance for my children as they were born as well as registered education savings plans (RESPs). How do these qualify as retirement assets? Retirement planning is not just about what you save, but also about what you don’t have to spend in your latter years. Starting with the assumption that my children’s policies would not be paid out during my lifetime (what a devastating blow that would be), the RESPs paid for university, and now I’m turning over the insurance policies to them without tax consequence. My oldest child’s policy is worth about $30,000, which will give him a head start in life, especially with his university bills paid for. Note that my savings have not been touched. They won’t be for my other children either, and they are all graduating from the bank of mom and dad. That is what I call retirement planning!

The third asset was a retirement home in the country that my wife and I convinced her parents to move into (which only works if you like your in-laws). They were asset rich and cash poor, so it worked for them too, as their house became their retirement fund. They’ve always paid taxes, upkeep, and utilities, and we paid the mortgage until the house was paid off seven years later (almost 20 years ago). It’s a pretty big place. Her dad died years ago, and while we’ve thought of this place as home for a very long time, soon it really will be home and not just a weekend retreat. It’s worth about $750,000, and Grandma doesn’t have to go anywhere, she can just stay with us.

Other assets were stock investments in the companies I worked at and a city home (soon to be sold, and a core tax-exempt part of my retirement savings). This home was mortgaged several times for investment purposes but is now fully paid off. I folded a couple of pension plans into registered retirement savings plans (RRSPs) and/or locked-in retirement accounts (LIRAs), mainly invested in equity index product or exchange-traded funds (ETFs) because I like managing and being in control of my own money, and I hate management fees. I also put money into a rainy-day fund for contingencies, and starting in my 50s, I topped up all my unused RRSP contributions. Soon after the house is sold I will probably buy some fixed income assets again, although I like to buy assets that pay a good return for the risk taken, and I am not of the mind that this is the case at present.

I’ll keep the final numbers to myself, but I’m comfortable for the rest of my expected life, and having managed money for aging relatives, I know that I don’t need as much as many say. I hope to travel a bit while I still can and go back to school and be the old guy at the back of the class. Hopefully, I will use up my financial and other assets during my lifetime and find ways to be useful. Barring contingencies and bad luck (note to self: stay married to the partner you have been with for the past 34 years), retirement looks attractive. I challenge you to find an advisor who would suggest that you do what I have done. And as I enter retired life, I have the illusion of control that rightly or wrongly makes me feel like I am in charge.

The View from 30 – Tim Usher-Jones, CFA

Thanks Peter. As tax-planning season approaches, I recently opened my RRSP statement and was reminded my formal date of retirement—2048. I also came across an article in Report on Business focused on retirement. While its content is no doubt interesting and valuable to some, most people in their early working career would say “Who cares?” I am also in that boat, so of course my comments are written for those who are closer to birth than to their retirement age. And 2048 is not yet on my mind.

Most articles relevant to those under 40 focus broadly on debt repayment, portfolio allocation, tax planning, or buying a first home. The truth is, there’s likely too much literature out there for one to read, much of it generic, and it can be difficult to find appropriate, catered advice for individual situations. Financial professionals, however, should have the background for taking ownership over their finances, and it’s never too early to take charge of your financial future. Despite this, even some very talented practitioners don’t spend sufficient time thinking about retirement and wealth creation in the early planning phases.

And the words “retirement planning” might not even be appropriate for me. One month ago, I attended CFA Society Toronto’s Media Awards and spoke with Jonathan Chevreau, editor of Money- Sense and long-time personal finance writer for the Financial Post. We spoke about retirement and his book, Findependence Day. His premise is to set a goal of financial independence, selecting a specific day when one has sufficient assets that he or she can choose to work—or not. I do believe that, if healthy, I will be working past my formal retirement age. But I wish to be doing so of my own accord.

My retirement plan is simply about asset growth while protecting the core portfolio. This begins with life insurance. Luckily, my father, who is a chartered accountant, also purchased a life insurance policy on my behalf early in life. I continue to fund this, both for tax planning and to protect my family if anything were to happen to me.

Second in the plan is real estate. I have bought and sold two homes within the last decade, and currently my wife and I rent. This asset class literally became a retirement vehicle, with the initial down payment coming from an RRSP account. My wife and I have spoken in depth about our financial goals for the future. Information sharing here seems key to a successful future. And while we disagree at times, given the emotional nature of owning a home, I am a firm believer that there will eventually be a measured correction in the real estate market. It is difficult to find a house today that we would be comfortable living in for the next 20 years, and the velocity of single family home price appreciation in Toronto astounds me. We have alternatively discussed investing in working farmland with retirement in mind, but inflation in Ontario farmland is even more extreme. Despite all this, logic may not prevail, and I have a feeling we will become homeowners again soon.

On the investment side, I believe those who are gainfully employed early in their career should take a more aggressive stance on investing. My investments start with a concentrated core equity portfolio, including ETFs, along with a great retirement plan and benefits provided by my employer. I overlay this with aggressive investment strategies outside of my core portfolio, while I have the capacity and am prepared to take losses (and learn how to hedge). Currently, I’m buying relatively inexpensive synthetic portfolio insurance through options and continue to look for other private investment opportunities. The only debt instrument I own is in the form of convertible shares issued to a private Canadian corporation, and I’m looking into higher yield and hedged bond funds. As with Peter, I can’t imagine my portfolio mix fits squarely into any recommended portfolio strategies.

Given that the year 2048 sounds more like something from a sci-fi movie than an actual retirement date right now, the concept of financial independence is much easier to grasp than retirement. Investment strategies should still be about moderation, but should also be planned with financial independence in mind. Don’t save or spend too much early on, exercise discipline and a certain sacrifice so that you plan appropriately for your future, and that financial independence day will soon be within your grasp.

To conclude, you should think for yourself and take control over your financial independence, which not only includes retirement but also life in general. Nobody will make this a priority unless you do it yourself. Spend time to create a sound and knowledgeable plan, start saving early (read: delay that Porsche purchase), pay down debt, and generally take more risk when you are younger and can bounce back. Build assets and, if appropriate, use debt as a way to build wealth wisely. Consult other professionals where appropriate.

Finally, build your retirement security based on disciplined and thoughtful wealth decisions throughout your life—and not your life based on retirement security.