Graham Westmacott CFA

Portfolio Manager

Susan Daley CFA

Associate Portfolio Manager
  • T519.880.0888
  • 1.877.517.0888
  • F519.880.9997
  • The Marsland Centre
  • 20 Erb St. W,
    Suite 506
  • Waterloo, Ontario N2L 1T2

Is saving for retirement getting harder?

Living longer + lower investment returns = saving more. How big is the challenge?


Retirees who are drawing income from their savings face the twin challenges of living longer and lower investment returns than their predecessors. As a consequence, retirees today must save more to generate the same retirement income than retirees in the past. But how much more?  One factor working in favour of today’s retirees is that the cost of investing has fallen: fund costs have declined as low-cost index funds and exchange traded funds have become more prevalent. To what extent does this compensate for the challenges faced by retires?

We compare the retirement situation in 1996 with 2016. 


From US life tables  a single, 65-year-old male, in 1990 had a life expectancy of 14.98 years. For a 65 year old male in 2020 the projected life expectancy is 17.02 years, a gain of 2.04 years in 30 years. Interpolating these values gives a longevity for a 65 year old in 1996 of 15.39 years, increasing to 16.75 years by 2016.

Market Data

While we have historic data for investment returns from 1996 onwards, we must estimate returns for the future. We use PWL expected returns that blends historic performance with expected returns using current asset valuations. The overall impact is that future returns are expected to be lower than historic returns for both stocks and bonds.
We choose an investment portfolio with a constant allocation of 50% stocks and 50% bonds as being typical of a retirement portfolio. The annualised return for the period 1996-2016 is 7.53% and a volatility of 6.20%. The average annualised inflation during the period was 1.87%. The PWL expected return in 2016 was 5.10% with a volatility of 6.20%

Fund Expenses

From US data on balanced funds during the period 1990-2011 we estimate that fund costs have declined by 0.0105% /year. Canada fund data for actively managed mutual funds suggest a total average cost of 2.14% in 2016, but historic data going back to 1996 in not available. Assuming Canadian funds followed the same trends as US funds, we estimate the average Canadian actively managed fund had a total cost of 2.35% in 1996.

In 1996, the market for low cost index funds and ETFs was barely getting started. Now they offer an attractive alternative to actively managed funds: PWL and other providers can offer index and ETF portfolios for an annual fee of 1.4% or less. We consider the impact on retirement income of using the low-cost index fund/ETF approach.

Our input data are summarized in the following table:

Factor 1996 2016 (Active Funds) 2016 (Index funds/ETFs)
Longevity 14.98 years 16.75 years 16.75 years
Fund returns 7.53% 5.10% 5.10%
Fund Volatility 6.20% 6.20% 6.20%
Inflation 1.87% 1.80% 1.80%
Fund Expenses 2.35% 2.14% 1.40%

Source: PWL Capital unless otherwise specified


Using the 1996 data we simulate a portfolio of $1 million at age 65, which is depleted over the expected life time according to the ARVA spending rule, discussed here. ARVA has the property of depleting the portfolio to zero over the specified period, making comparisons easier. We calculate the median total real income over the retirement period and divide by the retirement period to arrive at an average annual real income.

The results are given below:

Retirement Date Average annual real income
1996 $81,860
2016 (Active funds) $63,382
2016 (Index funds/ETFs) $67,531

Source: PWL Capital


The retiree in 2016 faces the prospect of a lower retirement income from the same initial savings due to increased longevity and lower expected returns, even accounting for the decline in fund fees. From the table above, the annual retirement income falls from $81,860 in 1996 to $63,382 in 2016. To maintain the same real annual income enjoyed in 1996, an investor would need to save 29% more.   Investors who uses index funds/ETFS can improve matters by raising the average annual real income to $67,531, so they only have to save 21% more.

We focused on the example of a single male retiring at age 65. For females and couples, or for anyone who retired earlier, the retirement period would be longer and the differences from lower fund fees would be more pronounced.  

By: Graham Westmacott | 0 comments

What is a Mutual Fund?

When it comes to mutual funds, you’ll often hear polarizing views. Some people think they’re the greatest thing since sliced bread. Others talk about how horrible they are and that you should stay as far away from them as possible! In order to make up your mind for yourself, it’s important to understand what mutual funds are, how they are structured, the fees associated with them, and why they are so popular. In this first video of a many part series, I outline exactly what mutual funds are, briefly discuss why they are popular, and give you an idea of how a portfolio manager decides what to invest in. 


Do you hold mutual funds? Why or why not? I’d love to hear in the comments below!

By: Susan Daley | 0 comments

10 Tax Tips for Millennials

There are many advantages to getting ahead start, your tax preparation included. Planning ahead, keeping receipts, and having some money available at the end of the year can allow you to take advantage of a number of tax savings opportunities. I outline some of the top tax credits and deductions available to millennials, including student loan interest, the First-Time Donor’s Super Credit, moving expenses, and the First Time Home Buyers’ tax credit. Watch my video to find out the rest.


By: Susan Daley | 0 comments

The Retiree’s Dilemmma: The Deckards

We illustrate a dynamic approach to retirement income planning that avoids some the pitfalls of traditional retirement planning.

Like many retirees, the Deckards face the dilemma of how much they can withdraw from their savings during retirement. The Deckards are 62 and have savings of $1.4 million and are currently withdrawing $60,000 annually. Further details are in a white paper where we contrast a traditional fixed withdrawal, fixed asset allocation approach to retirement portfolios with a dynamic model.  

Most retirees have to deal with the following trade-offs:

  1. Spend more now versus run out of money later
  2. Conserve assets for the future but fear fate robs you of that future
  3. Take investment risk to grow assets but risk unrecoverable market declines
  4. Investment conservatively for fear of markets yet want to spend now while in good health.

These trade-offs arise because of the uncertainties of future investment returns coupled with the uncertain length of retirement. Traditional retirement planning compounds these challenges with rigid withdrawals over the retirement period. The consequence is that, as retirement progresses, portfolio values tend to cluster around the extremes of either prematurely running out of money or leaving unspent retirement assets. In the Deckard’s case we show this can lead to 50% of outcomes falling into these two extremes.

We show how the Deckards can be confident of not running out of money or leaving considerable portions of their retirement savings unused. To achieve this requires changing from a constant to a flexible annual withdrawal and to allow the asset allocation to stocks to change according to portfolio performance and likely lifespan.

Source: PWL Capital


The figure above contrasts the two approaches with the constant withdrawal, constant asset allocation represented by the orange bars and the dynamic approach represented by the blue bars. In each case we show the range of portfolio values after 28 years of withdrawals. The likely range of portfolio values with the dynamic strategy is shown by the blue bars. Even at age 90, they have a 71% chance of having between $150,000 and $300,000 of assets remaining, enough to fund a few more years of retirement, if needed. In contrast, the constant withdrawal, constant asset allocation approach has only an 11% of achieving this reasonable outcome, and a 28% change of having run out of money completely.

The dynamic strategy trades off the possibility of leaving an unintended inheritance against the risks of running out of money without any loss in total income. In the Deckards’ situation, the dynamic strategy yields an average total income to age 90 of $1.579 million, slightly more than the average income from the constant withdrawal strategy of $1.575 million.

Allowing annual withdrawals and asset allocation to flex according to market conditions not only makes intuitive sense, but also reduces the risk of failure. There will always be trade-offs when the goal is a steady income from a volatile asset, but our experience is that client’s value having a rational process that manages the risk of shortfall and is continuously updated throughout their retirement, with spending guidance along the way.  


By: Graham Westmacott | 0 comments