While baby boomers tend to be optimistic about both their health and finances, a study from Morneau Shepell suggests that many are unprepared for retirement.
Morneau Shepell’s study Forgotten Decisions examines the disconnect between Canadians' plans and the reality they will face in retirement. The benefits consulting firm polled working Canadians who were age 50 and older and found that many have unrealistic expectations of both their health and finances.
Chronic health conditions
While 97% of the survey respondents described their current level of health as being good, very good, or excellent and 86% said they expect to retire in good health, the survey revealed that 61% of employees over the age of 50 are actually suffering from one or more chronic health conditions. The most common chronic conditions were hypertension (affecting 25%), arthritis (24%), high cholesterol (18%), diabetes (12%), and depression, anxiety or other mental health problems (9%).
“Chronic health issues are so commonplace that sometimes they are accepted as the norm. Unfortunately, this can lead to complacency and lack of investment in one’s own health and lack of preparation for health costs,” comments Paula Allen, vice president, research and integrative solutions at Morneau Shepell. “The cost of chronic health issues, which often increase with age, can be a big shock during retirement, as employer health benefits may no longer be available for medication and other health-related support. As well, the public drug plan covers much fewer medications than most employer-sponsored plans.”
Poor savings rates
As far as their finances are concerned, more than a third of those surveyed admitted that they save 10% or less of their current salary for retirement. Despite these poor savings rates employees said they plan to withdraw an average of 15% of their total savings a year following retirement, which is four times the rate that is typically recommended.
“Employees have an unrealistic view of what their financial situation will be in retirement,” says Allan. “There is an evident disconnect between how long retirement income typically needs to last, the savings pattern of many, and the withdrawal plans of most. More than 70% of respondents are planning to withdraw more than the recommended amount annually.”