Anyone who has been following my writing for a while probably realizes that I write about two types of things: strict technical topics, and tech adjacent topics. The straight tech topics, such as how to use application $FOO, are useful for introducing new ideas to other tech people. My tech adjacent topics potentially have a much broader audience because those articles are about the impact of technology, not any particular technology itself. Today’s post is one of those adjacent topics and it deals with the unintended consequences of our response to COVID.
Before we go too much further, I’d like to do some expectation setting. I am not well educated in financial matters and retirement planning. In my experience, most people are also not well educated in financial matters, so that is where I am aiming for this article. Also, whenever I put the word “COVID” into any article, there’s a risk that someone will assume I am about to go all conspiracy-theory weird about it. I’m not. It’s real. You need to take precautions. It’s not a government plot (I can’t believe I even have to say this, but I live beside the United States). OK, moving on.
The "off-the-shelf” retirement plan preached in Canada looks something like this: You will need 80% of your working income each year you are retired and you will accumulate this through a combination of savings, government programs, and liquidating assets you no longer need.
Males live an average of 79 years in Canada, females 84. I’m going to split the difference and use 82 years. Generally, people retire at 65. The average income in Canada for “unattached individuals” is $61,000. So, if you expect to live 17 years after retirement, and you need to draw 80% of that salary each year ($48,800), you will consume $830,000. Because Canada is awesome, some of that will be offset by the Old Age Security to the tune of $186,000 over 17 years (maximum for single people). In addition, if you’ve paid into the Canadian Pension Plan during your work life, you could get up to $1,175 a month, but I am going to use the actual, average payout of CPP this year which is about $700/month which works out to $142,000 over 17 years.
Once we crunch this all together, we see that we have to save, or be able to liquidate assets in the value of around $500,000 (half a million bucks) between 65 and 82 years of age just to have a very moderate lifestyle.
Remember that some of that money is taxed when it is withdrawn just like a salary would be.
Back to the 80% rule: where does the idea that we can maintain our lifestyle on 20% less income stem from? Conventional wisdom says that 20% is what we “waste” working. It is the money we spend on work clothes, commuting, parking, lunches, and things we would only do if we were working. When we retire, that 20% is magically freed up because we’re not doing those things anymore.
I can’t speak to how accurate that 20% number is. But I can confidently point out that the vast armies of workers who have been sent home during COVID have already stopped spending money on those things. I’ve been working from home since 2014 and I’ve managed to find a nice balance. True, I spend exactly zero on commuting costs, but I don’t work in a towel. I still buy clothes, go out for lunch, and meet people after work, but I definitely don’t spend as much money as I did on work. Eventually, the novelty of working from home will wear off for workers who were sent home during COVID and they will also start spending a few bucks on a normal work-life balance again. But, like me, those expenditures will likely not rise back up to the amount spent while at a brick and mortar office.
We’re in the first wave of COVID. The epidemiology models in Canada predict ever-lessening waves of COVID every few months until there is a widely available vaccine. Eventually, COVID will be gone; either by reducing the vulnerable victim rate to zero through immunity or by the presence of a vaccine. But things will never be the same.
They’ll never be the same because a number of industries have been irreversibly affected by COVID. Some for the better - many businesses, my company included, made dramatic expenditures to facilitate working from home because any other solution was suicide: either figure out this thorny and expensive remote work problem or shut down the company. These types of expenditures had languished on the back burner for years because there was no compelling reason to spend that money before now.
If I can editorialize for a bit…some changes may seem worse but may actually improve our world a bit. A big example is the sharing culture “gig” jobs that have basically dried up entirely. The Ubers and Air BnBs of the world may not be coming back which is fine with me. Those “businesses” are utterly exploitative of people and resources and it makes me sad that humanity allowed them to thrive in the first place.
Another bunch of industries such as entertainment, transportation, and restaurants are undergoing massive change. These are the industries that have elevated the practice of exploiting both their workers and their customers to an art. These industries need to pack as many humans in as small a space as possible, charge them as much as they can, and pay their workers as little as possible in order to survive. While I will bemoan my $7 burger now costing $12, I won’t mourn the loss of the leg-room and breathing air on my next flight regardless of how much more it costs. Those industries have not done many favours for humanity and they’ve been treating all of so poorly for so many years that the behaviour has become normalized. Paying minimum wage to servers and just winking at their tips to stave off starvation is considered “normal”. That’s not normal, that’s exploitation. Ok, end editorial…
I think we should also consider that COVID-19 may not be the last novel virus we see. I have no expertise in the medical field at all, so I am not making a prediction, but I honestly do not see why there is any reason to believe we won’t see other pandemics of diseases for which we have no cure or vaccine. Why can’t there be a COVID-20, or a COVID-20-1 and a COVID-20-2, and so on? Maybe there is a good answer to this, maybe not. But the far-reaching implications of these viruses have changed the landscape forever. More people will be spending more time apart in the future and that has an impact on our tried and true retirement philosophies.
Now we’re faced with the specter that we’re going to need 100% of our income when we retire.
I think it is pretty unlikely that most Canadians have a viable plan to finance their retirement at the 80% level. Now we’re faced with the specter that we’re going to need 100% of our income when we retire. Our income needs will not drop at all when we retire, so now the retirement goal is to simply stop working and somehow make the same amount of money we did while working. I could not afford to do that today and I don’t see how I will be able to afford to do that when I retire.
Also, keep in mind that we’re in our first significant modern pandemic. It’s feasible now for workers to sock away that 20% they’re no longer spending on work stuff. But, businesses are sociopathic, and the next generation of workers that have never set foot in the office will likely be hired at 20% less than the previous generation because they won’t have work expenses. In capitalist countries, we reward businesses for cost-saving behaviour like that. That generation of workers is going to have an even tougher time trying to amass 100% of their pre-retirement income.
Less Bleak Thoughts
I can’t leave you on that bleak note, so here’s some sunlight. I work in tech and, as I mentioned, I have been working at home for years, long before COVID. That is a double-edged sword. When your location no longer matters, your potential job market becomes global and there are thousands of more jobs you can work at than you can consider if you have to be physically present. On the other hand, you’re now competing for those jobs with literally everyone else in the world, not just those people who happen to live around you.
In my experience, the balance still swings in the workers’ favour. Believe it or not, there are people who simply cannot work from home. They either deliberately eschew the idea, or they are simply not competent to motivate themselves to work without heavy oversight. For this reason, the remote work job market is as dynamic as the brick and mortal market and there are always lots of positions open.
I’ve never really bought into the idea of a “career”. I’ve been lucky enough to do what I love and the jobs followed. I don’t recommend my path to anyone because it has been fraught with setbacks and sleepless nights, but my path works for me and there is one part of it that I do think everyone can benefit from. Stop thinking of your job as something you have to do and start thinking of it as something you want to do. If you don’t want to do your job, do something else. It’s very hard to follow that philosophy when you’re limited to the opportunities within commuting distance of your house. It’s much easier to do in a COVID world where businesses are desperately trying to figure out how to stay alive using remote workers located anywhere. This period of time is a fantastic and unprecedented opportunity for workers. Take advantage of it.