Now that RSP season is in full swing, many publishers are providing special features and extra material geared towards investment strategy, retirement planning, and general good personal finance behavior. As pointed out by Canadian Capitalist, the Toronto Star is no exception. That being said, I read Ellen Roseman's article in today's edition (How Much Do You Need to Retire?) with that same mix of doubt I experience with every planning workbook or RRSP calculator (usually produced by companies that sell investment products) that focuses on determining the size of the nest egg needed to generate a targeted retirement lifestyle.
In most cases, the 'next step' after calculating the nest egg (while struggling to mask the fear and incredulity that accompanies this) , usually involves a selection of investment products or mutual funds with MERs > 2% from the workbook/calculator sponsor. I went through this same process when recently setting up my employer-matched RSP at work. No where in this literature do we see promoted low-cost index funds, DRIP programs, value dividend investing, etc. that offer a mathematical advantage to the small investor. As my favorite professor in school insisted we ask ourselves of all things (he was a wee cynical) I find myself wondering qui bono - who profits?
This is why I'm perhaps instinctively attracted to the (deceptively?) simple approach of placing a greater priority on passive income/cashflow over the size of the nest egg. Where the nest egg model dictates that I accrue 1M? 2M? and then whittle away 4-7% per year in retirement, the cashflow model dictates that I buy and hold (hopefully forever) quality securities that continue to pay dividends year after year. In growth mode, these are reinvested, and in retirement mode, its income. This model also says that the underlying value of assets supporting the cashflow may fluctuate all over the place and it doesn't really matter. Even in crashes the dividends for such companies, in most cases, continue to be paid out.
I say 'deceptively' simple as I have also begun to carefully consider if the Fosterian approach is as much a repeatable strategy as it was a phenomenon of market conditions over a particular period of history, coupled with a bit of luck. All this being said, my long-term goal is really based on a nest egg-cashflow hybrid, and I imagine I will continue to track my monthly accruals (read nest egg building), and not income from investmensts, for quite some time.
For the record, I enjoy Ellen Roseman's columns. It was one of her articles, in fact that made me aware of the financial blogging community.