Thinking about retirement - We are not richer than we think
In 2008, an Ipsos Reid poll showed that 51 per cent of all Canadians expected to be fully retired by the age of 66. In 2011, the same poll showed the number had dropped to 27 per cent.
That’s a big shift in a short time and is the result, I believe, of several factors.
First, the financial crisis of 2008 hit people hard, both financially and in terms of confidence in the future. As interest rates dropped to next to nothing, and stock markets became depressed, then volatile, many people came to the realization that if they had done any financial planning based on an average return of five to eight per cent a year, those plans were out the window. Suddenly, the money they had saved that would generate enough income to supplement the Canada Pension Plan, or a private pension plan, just didn’t seem to be enough.
Second, the financial crisis awakened a lot of people who had never really spent any time thinking about finances at all. Many looked in their bank accounts and realized that they had not saved much. In fact, according to an HSBC survey, 47 per cent of Canadians between the ages of 55-64 have not saved anything for retirement. Almost a quarter of that population is currently carrying debt, usually for a home mortgage, but not always.
Third, as we’ve watched citizens march in the streets of Greece, Spain, Cypress, Italy and Portugal, we have also been put on notice that what a government says and what a government can do might be two different things. It’s one thing to promise retirement benefits and another to deliver when an economy falls flat or the number of recipients of such benefits is greater than those able to pay into the plan to support it. Past governments have laid a huge liability on the shoulders of the younger generation by making promises they must keep to the older generation. Suddenly, they are not sure those promises are viable.
Finally, as more Canadians have gotten close to the retirement age, they have decided they don’t want to retire, even if they might have some savings. Half of those with savings do not believe their money will last more than 10 years, and in their early 60s, they feel good and understand that their retirement years might last well into their 80s and 90s. What’s the rush to retire and run out of cash at a time when it’s impossible to create new income?
To shuffle problems further down the line, mandatory retirement ages are pretty much extinct and the age of full pension benefits is becoming a moving target as it slides higher.
Meanwhile, there is a generation of student-debt-ridden young people filling part-time jobs with no benefits, waiting for any openings in the real job market. Many of them are well educated and tech savvy and might well be more productive than their parents and grandparents who are still at the workplace, but unless they strike out on their own, carrying even more debt to start their own businesses, opportunities are limited.
There are two main things needed to reduce the challenges
First, we have to expect less from others and expect more from ourselves.
In the 1980s, Canadians saved, on average, almost 20 per cent a year. Now we spend, on average, more than we make, individually and as a country. That’s a recipe for personal and national chaos.
The second is we need to invest in young people. Whether the older generation semi-retires to make more openings, or financial institutions create cheaper venture-capital options or relieve student debt, we have to get young people into the productive workforce and generating an economy that can support the elderly when they can no longer support themselves.
We are not richer than we think.
Andrew W Bradley is a licensed Insurance Broker and Financial Services Advisor helping Orleans families since 2011. Combining this with his previous working experience with the Canada Revenue Agency enables him to help a wide range of individuals, families and businesses. As an Independent Broker he devotes time to educating the consumer and implementing comprehensive financial plans for both individuals and businesses in areas including insurance and investments.
The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. I recommend that you obtain your own independent professional advice (preferably me) before making any decision in relation to your particular requirements or circumstances.