Spooked by the uncertain economy, Canadians are saving less and are repeatedly pushing back their retirement date.
Sun Life Financial’s 2012 Canadian Unretirement™ Index shows that three out of ten Canadians definitely intend to retire at age 66, and that one in two plan to phase in retirement by working part-time or freelance. Of the Canadians who expect to continue working past age 65, 61% will do it out of necessity.
The index also finds that Canadians are uneasy with their economic situation. Nearly half of them are worried about their debt load at retirement: 44% of Canadians see debt repayment as a priority. A paltry 20% consider saving for retirement a priority. The index is based on an Ipsos Reid poll done online between Nov. 29 and Dec. 12, 2011, with a sample of 3701 Canadian workers ages 30 to 65.
No game plan
Marco Carreau draws on his 28 years of financial planning experience to explain the results. “People who don’t have much financial knowledge, who are fearful because of the economic situation or who don’t have a game plan hesitate to save,” the Quebec-based Sun Life advisor points out. “The ones who do have a plan in mind are much calmer. They keep their objectives in focus, regardless of what’s happening in the economy.”
During RRSP season, 60% of clients scramble to invest within two weeks of the deadline. “I had to make a lot of phone calls. It’s my job to remind them of their savings plan. Knowledge gives people the power to act,” Mr. Carreau says.
He also received many calls during that time “from people who had heard about our services.” These new clients often arrived in bad shape. They didn’t have a plan or an advisor. If they did have an advisor, he or she didn’t take the time to sit down with them to draw up their budget,” he says.
To design a savings plan, he reviews the client’s whole lifestyle. “My mother was right when she said you have to live within your means. I set limits with the client, calculate the ratio of food and housing to income. Then we put the budget to the test: you have to set aside funds every month to be able to work on the game plan,” Mr. Carreau explains.
He urges people with massive debt to take steps to reduce their debt load. There is good and bad debt – credit card falls into the second category.
“In February, I met with three couples. Each had $45,000 in credit card debt at 19%, even 24% interest. It’s crazy! In fact, there are ways to borrow at lower rates. We advise them to consolidate their debt. Sometimes it’s better to refinance the home and take out a mortgage loan to free up some liquid assets.”
Even better, show clients how to avoid making the same mistakes, he continues. “We do coaching. Some of my clients contact me every three months. They call before buying a car. Together, we calculate whether it’s a good idea. From one year to the next, these people get richer and feel better.”
Are detailed plans exclusively for the affluent? Absolutely not, Mr. Carreau insists. Everyone can benefit from this service.
“I had a couple of self-employed workers. One earns $35,000 per year, the other $32,000. They had financial difficulties: their mortgage was not that high, but they had a lot of credit card debt. We refinanced their home to create a safety net.”
This kind of security is a springboard to wellbeing, the advisor points out. “When you don’t feel suffocated, it’s encouraging. You can move, flourish. You can get a promotion. You can change jobs and earn a better salary.”
Mr. Carreau emphasizes that his clientele does not reflect the statistics reported in the Sun Life index. They will not be forced to work past age 65. “Many of my female clients want to retire at about age 50 to 52, while their spouse is still working. Many want to phase in retirement at ages 50 to 55. I encourage this type of planning,” he says.
Longevity and care
All the same, these dreams raise challenges that clients must clearly understand, Mr. Carreau continues. What employee benefits does the client hope to keep at retirement? How will their current benefit plan be affected by a shift from full-time to part-time work if they phase in retirement? Is it advantageous in tax terms to continue working fewer hours while receiving pension benefits from the company plan? How will phased retirement affect their annuities? Are they protected from disease or do they have a long-term care policy?”
“It is very important to discuss all these points with the clients. People don’t want to be placed in an institution. They want to stay at home. But they also don’t want to see their investments depleted in five years. How well have they calculated the costs of nursing and other care?”
These questions are becoming even more important as Canadians’ longevity increases, he adds. Statistics Canada estimates the average lifespan of Canadians born between 2006 and 2008 at 80.9 years – 78.5 years for men and 83.1 years for women. The study also finds that the average life expectancy of Canadians at age 65 is 20 more years, namely 18.3 years for men and 21.5 years for women.
In a more recent study, Statistics Canada observed that there were 1.3 million people age 80 and up in Canada at July 1, 2009. This number represents almost 4% of the population. The research noted 6000 Canadians age 100 or older. From only 3400 centenarians in 2001, this age group may expand to over 17,000 by the early 2030s.