June 29, 2008
By Tremblay, Monique
It's official: the no-work, all-play concept of retirement is on the verge of extinction. According to Desjardins Financial security's latest retirement study, many baby boomers' golden years will probably include part- or full-time work, consulting or entrepreneurship. The study, Rethink Retirement: 2007 Survey of Canadians' Preparedness for Life After Work, shows many Canadians are currently redefining many of their life Stages as they live longer and healthier lives. Half of those aged 40 and older are planning a gradual retirement. University-educated workers are more likely to envision doing some work past age 65.
The study also shows many Canadians are not prepared for the challenges retirement can bring. Since many are delaying the start of work and family life, they are supporting dependent children into their 50s and 60s. As these delays take place, they are failing to consider a variety of factors and risks that can have an impact on the yield and longevity of their savings, such as inflation, rising life expectancies and healthcare costs. Nearly 60% of those surveyed are not concerned about having a large enough nest egg to sustain their standard of living in retirement. More than 80% have not eliminated their consumer debt in retirement and even more are not concerned about paying off their mortgages (88%). And more than half are not worried that inflation will erode their savings.
In its survey, Desjardms identified several pre- and post- retirement profiles, each with its own challenges and characteristics, in order to help workers figure out their own positioning on the retirement timeline:
* Dreamers (16 or more years to go before retirement): only half of this group has created a retirement savings plan, even though they expect to live to an average age of 83. Many dreamers have not considered or planned for the risks that come with living longer.
* Sprinters (15 to six years before retirement) and count downers (five years or less to retirement): these groups are taking a more active approach to planning, yet many still do not have a plan in place and are not concerned about the possibility of requiring long- term care or becoming seriously ill. Many have not saved enough to maintain their standard of living into retirement and are concerned they will outlive their savings.
* Exiters (just retired): these people often realize within a year that their retirement might not be as expected, mostly because of a lack of planning and saving.
* Second lifers (retired for two to 15 years): in their early retirement years, people in this group often continue to enjoy good health, but 49% are somewhat or very concerned they may need extended care at home or in a longterm care facility, and 44% worry they may not have enough savings to pay these expenses.
* Extended lifers (retired for 16 years or more): a full 83% of these retirees rate their physical health as good, very good or excellent. But that is not necessarily the case for their financial health: 27% of respondents who have been retired for more than 15 years indicate their personal savings have dwindled to less than $1,000.
Canadians at the different stages of pre- and post-retirement aren't clear on just how much they'll need to maintain their standard of living in retirement. A little education about the risks that affect financial well-being - which can have an impact on personal health - can go a long way. Also, careful planning in each life stage is essential. Some tips include:
* Go back to basics. Take the time early on to figure out what you want out of your retirement and plan for it.
* Take inventory. When planning, know the total value of your assets and liabilities. Make a plan to eliminate liabilities.
* Do a reality check. Take your plan to a knowledgeable financial adviser to find out if your dream is achievable. Be sure to address retirement risks.
Advisers can be very helpful when planning for retirement, as many Canadians may not be aware of the financial solutions available to lessen the impact of changes during retirement caused by longevity, health and economic risks. But it's important that those ready to contemplate their future ask their adviser the right questions.
This is a summary. For an extended version of this article, please visit www.CAmagazine.com/desjardinso8.
University-educated workers are more likely than others to envision doing some work past age 65
Monique Tremblay, FCIA, FSA, MBA, is senior vicepresident of savings and segregated funds at Desjardins Financial Security
Copyright CANADIAN INSTITUTE OF CHARTERED ACCOUNTANTS Jun/Jul 2008
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