Redefining Retirement • Financial Planning
unprepared financially for retirement. The study has revealed that boomers are currently, on average, more than $400,000 short of their individual retirement savings goal. This is particularly concerning given that the oldest of the boomers (defined as those born between 1946 and 1964) turned 65 in 2010 and many others are just a few years away from retirement age. Recent StatsCan number crunching agrees and underscores the scare. The average senior Canadian couple spent about $54,100 in 2009. Analysts caution that, based on historical returns and a four per cent withdrawal rate, Meghan J. Meger that level of spending factored in to life expectancies, works out to needing savings of about $1.35 million to retire. And the experts agree that it is important to take government benefits—the Canada Pension Plan (CPP) or old age security (OAS)—into account when considering how much money it will take for reasonable happily-ever-after. If the average couple gets CPP and OAS at an average rate of 75 per cent, that may add up to about $28,000 a year and be a significant chunk of their annual income. Last year, Sun Life Financial’s (SLF) annual Unretirement Index poll showed that only 27 per cent of respondents believe they’ll retire by 66, a nearly 50 per cent decline from the previous year. And, for the first time since the insurance giant began its poll, the number of Canadians who plan on retiring by 66 is nearly equal to the proportion who plan on working full time past the age of 66. The SLF survey found that 63 per cent admitted that they need to work past 66 out of necessity, compared with 37 per cent who said they will keep working because they want to. The survey also showed that, on average, Canadians wanted $46,000 in annual income to retire reasonably comfortably but 59 per cent said they will have less – often much less – than $250,000 for retirement by 66. Thirty-eight per cent said they’ll have less than $100,000 saved. “It shouldn’t come as such a shock,” Fast shrugs. “According to the latest StatsCan survey, Canadian life expectancy is 81.8 years; slightly less for men. So even retiring at 65, we have to pay for about 15 or 20 more years of life expectancy.” The overwhelming consensus and reality bite is jarring and unarguable, no matter how blunt. Most Canadians can’t afford to retire! The positive is that boomers have never been easily discouraged and have turned going-for-the-gusto and doing whatever it takes into a determined lifestyle. The BMO study tracks what boomers are doing about their retirement dilemma and how they plan to compensate for their lack of retirement money. In addition to delaying retirement, BMO found that Canadian boomers plan to generate income in a variety of other ways. Almost three quarters (71 per cent) expect to take on a 52 • November 2013 BUSINESS IN CALGARY | www.businessincalgary.com
part-time job to earn extra income after they officially retire; 44 per cent will sell off collectibles, antiques or possessions they no longer use; about one third (32 per cent) expect to sell their home; and some 19 per cent will rent out part of their home for additional income. “One financial aspect of modern retirement,” Fast points out, “also becoming a concern for pension policymakers and financial institutions is that more and more Canadians are entering retirement with not only mortgage debt but also consumer debt. It’s a fact that one of the sharpest rates for declaring bankruptcy is the 55-plus age group. “But it’s misleading to imply that retirement is always a money problem. After a career and a lifetime of working, some people are just not ready to do nothing. Our identities are so tightly tied to what we do for a living that losing that can be traumatic.” Younger workers have different expectations about retirement. “After about two decades of dealing with clients, individual options, savings strategy and planning for retirement,” says Meger, “there’s a definite generational shift in approach and attitude. It’s not a bad idea to determine a desired retirement cash flow by calculating (hypothetical or not) that CPP or OAS won’t be there.” The trending shows that company pensions may also be fading as a retirement lifeline. “Statistically boomers changed jobs twice in their working lifetime,” she explains. “Gen-Xers seem to be setting a trend for changing jobs six times or more, usually climbing the ladder of incremental income. The days of working for 35 years and getting a pension are virtually over.” Although gen-Xers may also be in for some unexpected and jarring surprises when they reach retirement, for now they seem to be taking charge for whatever it will take to allow them to retire, perhaps sooner than their boomer parents. “Using any and every vehicle and option to reduce taxes must be looked at and considered. And learning lessons from the current situations of retirement age boomers, long-term and realistic advance planning is an absolute must,” she urges. “There are so many online options and services and especially gen-Xers are so in tune with working and doing their money management online. Advance planning is an easier routine and process. It wasn’t long ago when RRSP marketing had a desperate push coming up to the February deadline. Unlike their boomer parents,” Meger says with professional confidence, “they won’t be waiting until the last minute for RRSPs and other money planning.” And then there’s the caution that applies to so many things: life is what happens when you’re busy making plans! BiC