Rob Carrick, the Globe’s personal finance columnist, recently posted an article on his top ten money tips. Interesting perspectives but I thought he missed a few important points.

Save More.

“You have to save more because fat investment returns won’t be there.”

The personal savings rate for the third quarter of 2011 was 3.5 percent according to Statistics Canada. There seems to be a view that when you are scared, you save money and you spend less. Even with all of the scaremongering taking place in the world today, the consensus view is that Canadians may move the personal savings rate up to only about 6 percent by 2015.

What is missing from this tip is how much more Canadians should be saving. A 3 – 6 percent savings rate is simply too low even with “fat” investment returns. And there is a definite difference between saving and investing. You save for something, like a new car. You invest to grow wealth presumably for your retirement years. I assume Rob meant saving to invest. And if that is the case, a rate substantially above 3.5 percent is warranted.

Dividends Rule

“Quality dividend growth stocks rule.”

Unfortunately Rob does not highlight any quality dividend growth stocks. Perhaps he was hinting at Canadian bank stocks. That said, many Canadians have very little awareness of the stock market. They do not know how to invest on their own and they may not know how to start. Dividends may rule but a very important principle of managing money is do not place all of your eggs in one basket. Allocation and diversification are very important characteristics of a good investment plan. There is something to be said for holding bonds, real estate and cash in addition to dividend stocks.

Forget Early Retirement

“You likely can’t afford it, given our increasingly long lifespans and spotty commitment to saving. A recent Toronto-Dominion Bank poll showed the average age at which people hope to retire is 61. Talk about a rich fantasy life.”

Well, I guess our expectations are consistent with the Statistics Canada finding:

In 2000-2004, the median age at retirement was inversely proportional to educational attainment. The median age at retirement for those with a university degree was 59.8 years for men; 58.3 years for women.  The median retirement age for those with only elementary-level education was highest, with men retiring at 64.9  years, and women, at 64.6.

Most Canadians have retired in their early 60s. I’m not sure why he holds this one as a top ten money tip. For those wanting early retirement, they have likely planned for it over a long period of time and/or they have defined benefit pension plans that helped them to retire early. If they are not ready for early retirement, then the appropriate tip is to keep working and, more importantly, save for retirement.

Have An Emergency Stash

“Have a job-loss strategy in place: An emergency fund with three months living expenses is great, but even a fund that can carry the mortgage for a few payments is better than nothing. Keep your money in a high-rate savings account. Oh, and a line of credit can be helpful to bridge you over a period of money troubles.”

Yes. An emergency fund of about three months living expenses is a good idea regardless of a job-loss strategy. Unexpected expenses do happen. Using a line of credit as a bridge over a period of money troubles will likely just lead to more money troubles. That is not a great tip.

Don’t Count On Your House

“Housing wealth won’t get you through: Counting on getting a big whack of money from the sale of your home to help pay for your retirement? Consider two things: There’s more downside risk than upside potential for home prices in the near to medium term, and the price of buying a condo or bungalow is higher than you think.”

Industry Canada has a few things to say about housing assets.

The largest asset held by Canadians, on average, is their principal residence… Many consumers who do not own a home have very weak balance sheets… the ownership of a principal residence is strongly correlated with net wealth.

A better tip would be to clear off your mortgage as quickly as possible. Chances are that you will live in your house for a number of years and you will have equity with a house that you own free and clear even if a significant housing correction takes place.

Anticipate Another Dip

“An economic slowdown, if we get one, will be worse than the last time.”

Well, if we get one, it could be worse than the last time. Economic cycles are like that. Perhaps a better money tip would be to take advantage of the low interest rates to reduce debt quickly.

Watch Your Company Pension

“Keep an eye on your company pension plan.”

Given that less than 30 percent of all Canadian workers are covered by a defined-benefit pension plan, a better tip might be to keep an eye on your retirement savings including your company pension plan (if you are fortunate enough to have one).

Weigh Student Debt

“Taking on student debt has to pay off: To begin with, youth unemployment rates are about double the national rate. Next, add generational competition between 20-somethings trying to break into the work force and 60-somethings who want to continue working instead of retiring. It doesn’t make sense to rack up giant debts on courses that won’t give you an edge in this competitive work world.”

Not sure why this one would rank as a top ten money tip. But then again, I have been out of school for a long time now.

Have A Plan

“It’s go-to time for financial planners: Planners, people have never needed your help more. Rampant debt, low levels of retirement saving, guesswork investing – couldn’t a comprehensive financial plan offer a big fix? Of course, you’ll have to first sort out whether your business model is selling advice or selling investment products.”

Absolutely. A financial plan is a good thing to have. But do financial plans really change how people manage their money? Surveys consistently identify that the majority of Canadians do not have any financial plan. As a money tip I would add a key word: have an ACTION plan to improve your management of money. There are lots of resources on the web and in bookstores.

Keep An Eye On Fees

“The financial industry is hungry: What do banks, fund companies and investment firms do when profits are harder to come by? They get clients to pay higher fees and borrowing costs. Be vigilant about these extra costs. Complain to your firm or bank and then see whether you can get out of paying them because you’re a great catch as a customer.”

Perhaps Rob meant to say: keep an eye on your spending. It is not just fees and the hungry financial industry. A better money tip is to track your spending and to identify areas to reduce your spending. Make your money go as far as it can.

McKinsey recently released a report called The Emerging Equity Gap. You can find the report here.

Some of their key findings include the following:

• Investors in developed economies hold nearly 80 percent of the world’s financial assets — or $157 trillion — but these pools of wealth are growing slowly relative to those in emerging markets.
• ƒThe financial assets of investors in emerging economies will rise to as much as 36 percent of the global total by 2020, from about 21 percent today. But unlike in developed countries, the financial assets of private investors in these nations currently are concentrated in bank deposits, with little in equities.
• ƒSeveral factors are reducing investor appetite for equities in developed countries: aging populations; shifts to defined-contribution retirement plans; growth of alternative investments such as private equity; regulatory changes for financial institutions; and a possible retreat from stocks in reaction to low returns and high volatility.
• ƒBased on these trends, McKinsey projects the share of global financial assets in publicly traded equities may fall from 28 percent today to 22 percent by 2020. That will create a growing “equity gap” over the next decade between the amount of equities that investors will desire and what companies will need to fund growth. This gap will amount to approximately $12.3 trillion in the 18 countries McKinsey modelled, and will appear almost entirely in emerging markets, although Europe will also face a gap.

It looks like I may not be the only investor thinking about this strategy.

From The National:

With personal debt on the rise and workplace pensions disappearing, Canadians are finding themselves unprepared for retirement. About eighty per cent of middle class Canadians don’t have enough money put away to get through even one year of retirement. Not surprisingly, the situation is now being recognized as one of the most urgent problems facing the country. With that in mind, The National presents a special edition of The Bottom Line: Are you ready for retirement?

You can watch the video here.

Finding the number is a bit of work.

From this article in the Chronicle Herald:

Looking for the magic retirement savings number is like tracking a yeti in a blizzard — the minute you think you’ve spotted one it melts away into the landscape. Only about 32 per cent of Canadians are covered by a company-sponsored pension plan, so the real issue for the majority is not how much they need to save but the fact that they need to save, period.

The amount of money Canadians put aside (most of which is for retirement) has dropped like a stone since 1982. An April 2010 BMO retirement institute report shows that the saving rate plummeted from about 20 per cent of personal income that year to just over one per cent in 2005. Thanks to the recession, the figure climbed back over four per cent in 2008, but it’s still very low historically.

Fortunately, we are covered by company-sponsored pension plans. And we have been saving at a rate that is significantly higher than the national savings rate.

I spent most of the week-end thinking about the number. Planning the number. Running scenarios against the number. And I found it.

Why look for the number? At this time of year, I plan my goals for the next 12 months in the following categories:

• Faith
• Family
• Finances
• Fitness
• Personal Development
• Career

Finding the number was related to some goals in the Finances category. As I am getting a bit older, retirement is no longer an abstract concept. I wanted to ensure that our financial goals were on track. Our goals:

• Give, invest and manage money wisely
• Pay off mortgage and other debts as quickly as possible
• Provide university education for our children
• Maintain the family’s standard of living in the event of death or disability
• Become financially independent
• Maintain standard of living during retirement
• Preserve the estate for heirs

These goals, written quite a few years back, helped guide our thinking and planning. It was a great feeling to look at those goals, reflect on the future, and set targets for 2011. It was a great feeling because we are on track.

Ellen Roseman, a personal finance columnist for the Toronto Star, was on The National tonight. The special segment, which may be still be posted here, asked the question: “Why aren’t Canadians saving enough for retirement?”

Well, one reason is because we do not know how much to save. Ellen tells us that we should look at the income that we think we will need at retirement and multiply that amount by 20. That amount, if taken out at a safe withdrawal rate of 4 percent, should produce the desired income without fear of outliving the capital.

The example is captured below. To produce $50,000 per year, you multiply that amount by 20. And you arrive at $2 million. Hmmm.

I guess Ellen Roseman and the CBC do not know how much to save for retirement either.

What was most interesting is that neither the anchor nor the columnist showed any surprise at the result. I guess they did not have a calculator with them.

$2 million.

Yes. That should shock the viewers into saving for retirement. Who cares whether the math makes sense. $50,000 times 20 is $2 million. Job done. On to the next story.

Little wonder Canadians are confused about financial planning.

The 2009 Canadian Financial Capability Survey provides some interesting insight into the level of financial literacy in our country:

• Nearly one-quarter of Canadians were found to be weak in three key areas of financial capability; namely, keeping track of their finances, planning ahead, and staying informed about financial matters; another 8 per cent were weak in all of the above-mentioned areas, as well as in making ends meet.
• More than one-third of Canadians said they were either struggling, or unable, to keep up with their finances.
• While 70 per cent of Canadians said they were preparing their finances for retirement, 30 per cent were not.
• About one-third of Canadians did not know the answer to, or answered incorrectly, a question in the Objective Quiz about what happens to their buying power when the inflation rate is higher than the interest they are earning on an investment.
• Only 35 per cent of Canadians knew that their investments in the stock market are not insured.
• Some 57 per cent of Canadians did not know the answer to, or answered incorrectly, a question in the Objective Quiz about the content of a credit report.

You can find the survey questionnaire here.

Some of the findings were actually better than I would have expected. The Government of Canada has the view that Canadians lack the basics when it comes to managing their money and the Minister of Finance has initiated a task force on financial literacy. You can find out more about the task force here.

Lifehacker carried an article from TheStreet in their Remains of the Day post entitled $1 Million Isn’t Enough To Retire.

The original article can be found on TheStreet here.

The relevant excerpt:

Scottrade recently polled 226 registered investment advisers on the topic and found that 71% don’t believe $1 million is enough for the average American family. Most said families need to save double, or more than triple, the amount.

“Younger generations, especially, need to set their retirement goals higher than other generations and start saving as early as possible,” says Craig Hogan, Scottrade’s director of customer-relationship management and reporting.

The survey solicited opinions about the current investment habits of Americans. Questions were broken down by generations to determine advisers’ opinions on average investment goals in today’s dollars for various groups.

Generation Y (ages 18 to 26) needs to save at least $2 million, according to 77% of advisers. Forty percent put the figure at $3 million.

Nearly half of advisers (46%) said Generation X (ages 27 to 42) should at least double the $1 million goal. Twenty-two percent suggested more than $3 million.

For Boomers (ages 43 to 64), 35% recommended $2 million to $3 million. Thirty percent suggested $1.5 million to $2 million.

And, even more dramatic, is the notion that instead of making do with 70% to 80% of pre-retirement income, a suggestion that people should be saving for 100% income replacement at retirement:

Bill Smith, president of Ohio-based Great Lakes Retirement Group, is among the advisers who took part in the survey. As he sees it, too many people rely on online retirement calculators. Much of that guidance uses a target based on making do with 70% to 80% of pre-retirement income.

“I’ve never been a big fan of planning to earn less in retirement than you are making now,” he says. “I’d like to see an individual continue making the same amount of retirement as when he was working. Who wants to set themselves up in retirement to make less?”

I suppose it should not be surprising that a survey of registered investment advisers would argue for more investment activity. That is, after all, how they get paid. However, to put impossible numbers in front of most families is irresponsible at best.

For the vast majority of Canadians, it is not possible to accumulate $2 to $3 million in investment savings during their working lives. Getting to the million dollar mark is a stretch even for the most affluent households. If we assume an average household income of $80,000 and an aggressive real rate of return of 5% over 30 years, that household would have to save almost 30% of after-tax income to hit the $1 million mark. The personal savings rate in Canada for the last quarter of 2009 was 4.6%.

Ipsos Reid determined that the portion of Canadian households with $1 million or more to invest is 2%. Investor Economics reports about 470,000 households have acquired investment assets of $1 million or higher. Roughly half are retired.

There are about 12 million households in Canada.

Quite a few people were surprised when I told them that I was leaving my career at the Bank of Montreal, leaving our home in Newmarket and heading out to a new role in Kingston, Ontario. I retired early from the Bank and we packed everything up and moved to our new home.

This was a big change. It is hard to describe in words but it feels like we are living a completely different life. Different and completely refreshing.

A friend of mine serves as a transition coach. He works with people in mid-life — 50 and better — who are, either by choice or circumstance, transitioning into their “Third Age”. He helps them discover their true passions and unlock the unique gifts that will make this transition the most fulfilling and meaningful of their lives.

He had this to say:

Many baby-boomers are approaching mid-life with successful careers but without ever following –- or even understanding –- their true passions. Driven by the demands of career and family, they’ve spent years pursuing “success” only to discover that now, when they should be feeling most fulfilled they in fact feel directionless and in a state of quiet crisis. For some, this is triggered by the looming prospect of retirement and the loss of identity associated with career, or by the realization that the image presented in advertising –- a life spent on the golf course or dozing in a hammock –- doesn’t ring true for them, for financial reasons or because for them this represents a life bereft of meaning. For others, it is triggered by the thought of 10 or more years in the same career and by a growing sense that there should be more to life than just “more of the same”.

There is more to life than just more of the same. It can be tough to take that first step. But once you take it, you never look back.

I have been reborn and it feels great.