A Plan to get New Grads Saving for Retirement
So they won't do the dumb stuff I did
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As I approach retirement, the importance of saving is becoming more relevant; the need to survive post-retirement sharpens the focus; it nudges us when we’re young and rubs our face in it as we age.
It’s like when I was 17, and my twin brother and I had the gang over; the following day, I would get a garbage bag and shuffle and stagger through the house, picking up all the evidence, making sure no vodka Mickey was left under the couch for my parents to discover when they returned. I did not feel like doing it.
I had to clean. It wasn’t a Jordan Peterson “make your bed because it’s good for your character” initiative. I had no choice.
Overall, I did a poor job saving for retirement, though I have pulled things together in the last 15 years. I’ll be okay. It’s not a “be like me” story; I don’t have many of these.
Yes, flailing around in life, running away at 19, pursuing education with little thought to its relevance, trying not to get fired, joining cults, moving too much, and grabbing opportunities until something works out is not a good strategy.
I googled it; it’s called a “Wonky” career. It reminds me of when I was 22, and I needed to get home from a bar after getting split up from my friends and having finished several pitchers with two double Everclears as an ill-advised chaser.
(Everclear is pure grain alcohol, but now, in this safety-obsessed age, it’s illegal. But you can still get drugs free in BC, and they bundle them with Naloxene kits. )
It was a freezing Minnesota winter.
I don’t remember what I did, but I woke up fully clothed on my couch. I had vomited on my statistics textbook, so perhaps my primordial brain was making negative career suggestions. That textbook had to be pulled from the used book market. That is a wonky way of safely arranging how to get home. I don’t remember how I got home, but it wasn’t planned.
My point is that my career was more about pushing hard and hoping good things happened with too much desperation ever to allow central planning.
On the savings side, I should have started saving much younger, but in my day, we moved out at 19 and slogged it out at school and work, and savings weren't on our minds.
We didn't have to graduate, get our first job, and stay at home till you're 35 models of life. It was unthinkable, but homes were also about $300K.
I wrote the attached idea for Wealthsimple, but it has yet to go anywhere. It's a forced savings plan called the Elevator, an investment vehicle that relies on compounding and will leave users with over a million dollars by the time they retire.
It's the old cliche about slow-cooking a frog, where they don’t notice it—except in a good way.
Investors would just get used to not having the money. It starts slowly and increases by $15 per year but could be tweaked to take advantage of the high discretionary income for those living at home, raise the contribution in the first ten years, and then pull back—as long as it never stops.
I'm not looking to start such a plan; it would have to hang off an established robo-investment company or DIY platform. What interests me is the psychology behind the marketing, convincing people to put off tomorrow for today, how retirement can be remotely realistic for anyone in their twenties, etc.
Did I do what I preached? Of course not. I started in my late 30s and ended up desperately clearing out my RSP twice. I was a case study in not knowing what to do. But now things are looking all right, and I hope to avoid passing my senior year in a Walmart vest.
So please share it, use it, ignore it, change it, write back, and tell me how stupid it is and what major conceptual holes exist. But I'm not looking for a partner or trying to run with it. It's just what I think, and I believe it is a good idea, though at least I have the self-awareness to realize that someone smarter than me needs to run with it.
That may be a low bar.
But criticize away. I'm married; I'm used to it.
My thinking is that somehow, this would have to become cool for 18-24-year-olds; it would take some serious marketing muscle.
Right now, day trading, crypto, etc., is hip, but The Elevator is the opposite—this is to buy, hold, and forget about—out of sight, out of mind.
__________________________
It’s like when I was 17, and my twin brother and I had the gang over; the following day, I would get a garbage bag and shuffle and stagger through the house, picking up all the evidence, making sure no vodka Mickey was left under the couch for my parents to discover when they returned. I did not feel like doing it.
I had to clean. It wasn’t a Jordan Peterson “make your bed because it’s good for your character” initiative. I had no choice.
Overall, I did a poor job saving for retirement, though I have pulled things together in the last 15 years. I’ll be okay. It’s not a “be like me” story; I don’t have many of these.
Yes, flailing around in life, running away at 19, pursuing education with little thought to its relevance, trying not to get fired, joining cults, moving too much, and grabbing opportunities until something works out is not a good strategy.
I googled it; it’s called a “Wonky” career. It reminds me of when I was 22, and I needed to get home from a bar after getting split up from my friends and having finished several pitchers with two double Everclears as an ill-advised chaser.
(Everclear is pure grain alcohol, but now, in this safety-obsessed age, it’s illegal. But you can still get drugs free in BC, and they bundle them with Naloxene kits. )
It was a freezing Minnesota winter.
I don’t remember what I did, but I woke up fully clothed on my couch. I had vomited on my statistics textbook, so perhaps my primordial brain was making negative career suggestions. That textbook had to be pulled from the used book market. That is a wonky way of safely arranging how to get home. I don’t remember how I got home, but it wasn’t planned.
My point is that my career was more about pushing hard and hoping good things happened with too much desperation ever to allow central planning.
On the savings side, I should have started saving much younger, but in my day, we moved out at 19 and slogged it out at school and work, and savings weren't on our minds.
We didn't have to graduate, get our first job, and stay at home till you're 35 models of life. It was unthinkable, but homes were also about $300K.
I wrote the attached idea for Wealthsimple, but it has yet to go anywhere. It's a forced savings plan called the Elevator, an investment vehicle that relies on compounding and will leave users with over a million dollars by the time they retire.
It's the old cliche about slow-cooking a frog, where they don’t notice it—except in a good way.
Investors would just get used to not having the money. It starts slowly and increases by $15 per year but could be tweaked to take advantage of the high discretionary income for those living at home, raise the contribution in the first ten years, and then pull back—as long as it never stops.
I'm not looking to start such a plan; it would have to hang off an established robo-investment company or DIY platform. What interests me is the psychology behind the marketing, convincing people to put off tomorrow for today, how retirement can be remotely realistic for anyone in their twenties, etc.
Did I do what I preached? Of course not. I started in my late 30s and ended up desperately clearing out my RSP twice. I was a case study in not knowing what to do. But now things are looking all right, and I hope to avoid passing my senior year in a Walmart vest.
So please share it, use it, ignore it, change it, write back, and tell me how stupid it is and what major conceptual holes exist. But I'm not looking for a partner or trying to run with it. It's just what I think, and I believe it is a good idea, though at least I have the self-awareness to realize that someone smarter than me needs to run with it.
That may be a low bar.
But criticize away. I'm married; I'm used to it.
My thinking is that somehow, this would have to become cool for 18-24-year-olds; it would take some serious marketing muscle.
Right now, day trading, crypto, etc., is hip, but The Elevator is the opposite—this is to buy, hold, and forget about—out of sight, out of mind.
__________________________
The Elevator is a retirement investment vehicle (not) being pitched to investment firms.
It is a retirement investment vehicle specifically targeted at graduating Canadian university and college students. It is a TFSA and RRSP designed to provide a significant retirement income that, combined with CPP/OAS and any other investments, would give the investor a financially secure retirement. Users could have an FHSA on the side.
The Elevator operates under the reality that when equity investments are allowed to compound over 40-45 years, the investor can achieve a significant retirement nest egg without being required to invest monthly amounts that would negatively affect their lifestyle.
The Elevator’s formula is quite simple.
The recent graduate initially invested $1000 into their Elevator TFSA and subsequently invested $150/month. Every year, on the initial investment anniversary, the monthly contribution amount is increased by $15/month.
After the investor earns a salary of $50,000 annually, they would close the TFSA and allow it to grow organically—i.e., no further contributions until retirement. At this time, they would open an Elevator RRSP and begin contributing at the stated rate, with the $15/year increases being factored in.
Of course, someone can always cash out their investments. However, the investment firm must make it as slow and awkward as possible.
The CRA could offer some tips here as they still use fax machines. Ask them what method they would use if a client cancels a service. It might involve fax machines.
Or the user would be forced to contact the financial institution and get mailed the form to cash out their investments. That document must be notarized by a law firm and sent back by paper mail. That amount of work would scare off most of us.
Up front, the enrollee would be told this is the method.
The following assumptions would apply:
6.4% per year growth of the equity markets (based on a 50-year North American equity market average)
The growth rate is inflation-adjusted (assumption of 2% annual inflation)
There are no withdrawals or investment suspensions throughout the investment.
The equity mix would be 100% dividend and growth ETFs until age 62. At age 62, the mix would be switched to 60% equity / 40 % fixed income until retirement at age 65.
A 0.4% annual commission is charged by the Elevator by Wealthsimple.
All RRSP and TFSA investments would fit under the existing government maximums. At age 64, the maximum contribution would be $780/month in non-inflation-adjusted dollars.
Contributions are relatively modest (all monthly amounts are not inflation-adjusted), so there is no withdrawal provision for an initial home purchase. With modest withdrawals between ages 22 and 35, the investor could set up a TFSA or RRSP under current government rules for first-time home purchasers.
All tax savings from RRSP contributions are not factored in and would be spent or invested at the vehicle holder’s discretion.
Upon retirement, the investor should have approximately $1,000,000 (in 2021 dollars) in their RRSP and TFSA, with 22% of that amount in the TFSA and withdrawable as tax-free income.
Additional information
Upon signing up with the Elevator, the first $100 would be contributed to their TFSA, or the investor would have the option to receive a $100 Starbucks card or $100 Amazon card (this would provide a significant nudge to get investors on board).
If the investor cancelled or suspended contributions during the first five years, Wealthsimple would have to pay back the $100 bonus (no matter how it was received) to the Elevator.
With their consent, parents, grandparents, or any designated person could match the Elevator investor's contribution or subsidize the overall contribution up to $100/month. The contributor will be responsible for the monthly contribution if the co-investor no longer wants to support the Elevator contributor.
Please subscribe and get at least three pieces /essays per week with open comments. It’s $5 per month and less than $USD 4. I know everyone says hey, it’s just a cup of coffee (with me, not per day but just one per month), but if you’re like me, you go, “Hey, I only want so many cups of coffee!” I get it. I don’t subscribe to many here because I can’t afford it.
But I only ask that when you choose your coffee, please choose mine. Cheers.
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