A comfortable retirement might be closer than you think

If you live like a typical Canadian then you might not have to save as much as you think for retirement. Before determining how much Canadians need to save, it’s important to get a handle on how much they spend. A visit to Statistics Canada reveals that the average Canadian household spent $79,012 in 2013. (The most recent annual data available.) Of that amount $58,592 was devoted to consumption and $13,891 went to income taxes. The rest was spent on insurance, pensions, gifts, charity, and alimony. In a spot of good news, most retirees can happily live on much less than they did when they were working. After all, most don’t pay nearly as much in tax and, amongst other things, they generally spend less than the average ($12,041 per year) on transportation. Looking at different situations, the average one-person household spent $44,709 in 2013 with $34,135 devoted to consumption and $6,700 to income taxes. On the other hand, couples with children spent an average of $112,057, consumed $81,636 worth of goods and services, and paid $21,483 in income taxes in 2013. Because most people spend less in retirement than during their working lives, I’ll use the money devoted only to consumption as my benchmark for how much income retirees need. Singles consume a little less than $35,000 annually. But a good amount of that will likely be provided by CPP and OAS. Canadians who worked for most of their adult lives and earned a reasonable income will get, perhaps, $15,000 per year in such payments. As a result, they’ll need only about $20,000 more from their investments each year. Assuming that they invest in a low-fee balanced portfolio and follow the 4% withdrawal rule, they’ll need to save $500,000, or more, to retire at 65. The average household needs a bit more because they consume about $60,000 annually. CPP and OAS might come in at about $30,000 per year for a couple, which means they’d have to save enough to generate another $30,000 annually. A balanced low-fee portfolio worth more than $750,000 (using the 4% rule) should do the trick. I hasten to add that those with good pensions won’t have to worry about saving nearly as much. Naturally, this sort of quick calculation represents a very rough guide to what one might need to retire. Individuals can, and should, come up with better estimates based on their own circumstances. But when you add it all up, you’ll probably discover that you don’t need millions to retire in comfort

Safer Canadian Dogs

Investors following the Dogs of the Dow strategy want to buy the 10 highest yielding stocks in the Dow Jones Industrial Average (DJIA), hold them for a year, and then move into the new list of top yielders. The Dogs of the TSX works the same way but swaps the DJIA for the S&P/TSX 60, which contains 60 of the largest stocks in Canada. My safer variant of the Dogs of the TSX tracks the 10 stocks in the index with the highest dividend yields provided they also pass a series of safety tests, such as having positive earnings. The idea is to weed out companies that might cut their dividends in the near term. Just be warned, it’s a task that’s easier said than done. Here’s the updated Safer Dogs of the TSX, representing the top yielders as of Aug. 27, 2015. The list is a good starting point for those who want to put some money to work this week. Just keep in mind, the idea is to hold the stocks for at least a year after purchase–barring some calamity.

Name	Price	P/B	P/E	Earnings Yield	Dividend Yield
Potash (POT)	$34.05	2.51	15.88	6.30%	5.93%
BCE (BCE)	$53.57	3.77	18.22	5.49%	4.85%
CIBC (CM)	$95.60	1.91	10.69	9.35%	4.69%
National Bank (NA)	$45.06	1.63	9.97	10.03%	4.62%
TransCanada (TRP)	$45.16	1.91	18.51	5.40%	4.61%
Bank of Montreal (BMO)	$71.42	1.29	11.26	8.88%	4.59%
Bank of Nova Scotia (BNS)	$59.98	1.55	11.23	8.90%	4.53%
Shaw (SJR.B)	$26.41	2.55	16.3	6.13%	4.49%
Royal Bank (RY)	$73.99	1.94	11.26	8.88%	4.27%
Power Corp (POW)	$29.25	1.12	7.99	12.51%	4.26%

Notes: Source: Bloomberg, Aug. 25, 2015 Price: Closing price per share P/B: Price to Book Value Ratio P/E: Price to Earnings Ratio Earnings Yield: Earnings divided by Price, expressed as a percentage Dividend Yield: Expected-Annual-Dividend divided by Price, expressed as a percentage As always, do your due diligence before buying any stock, including those featured here. Make sure its situation hasn’t changed in some important way, read the latest press releases and regulatory filings and take special care with stocks that trade infrequently. Remember, stocks can be risky. So, be careful out there. (Norm may own shares of some, or all, of the stocks mentioned here.)