Retirement plans of golf, travel and unlimited leisure may remain a dream for the many baby boomers who lack financial discipline and are now facing the prospect of working into their traditional retirement years due to insufficient savings.
In December, the day before Ontario put an end to mandatory retirement, BMO Financial Group released a study conducted by Ipsos Reid indicating that three out of four pre-retirees in Ontario believe they will work beyond the typical retirement age. Some of these pre-retirees said they expect to work for reasons such as the desire to remain mentally active or stay in touch with people, but 69% also listed earning money as a reason.
“Ideally, pre-retirees and retirees would prefer not to work. When asked ideally how they would like to spend retirement, both groups think alike: they would rather travel, engage in hobbies, spend time with family and friends and do volunteer work,” noted the study.
It went on to add that 72% of Ontario boomers don’t feel on track with saving for their retirements or don’t know if they’re on track. The study also indicated that many boomers are willing to sacrifice aspects of their current lifestyle to compensate for their financial shortfall (see inset text).
The top five reasons why these boomers felt they were not on track were: No money left over to save (58%); Started saving too late (44%); Still supporting kids (28%); Health issues (22%); Job issues (20%).
The study also showed that just over 80% of boomers wished they’d started saving for retirement earlier.
Interviewed by The Insurance Journal, Kris Vikmanis, head of retirement market, BMO Financial Group, said the Ontario findings about boomers feeling off track financially are consistent with survey findings across Canada. Her message for these boomers is “take stock today – get to a bank branch or find a financial planner.”
She says while many boomers plan to keep working, perhaps on a part-time basis to shore up their insufficient retirement funds, this doesn’t take into account planning for contingencies, such as poor health that could prevent them from working. “What happens when bad things happen?”
Why aren’t boomers ready for retirement? According to a Canada-wide survey released by Desjardins Financial Security (DFS) in November, Canadians are waiting too long to start saving and planning for retirement. DFS’ fifth annual survey on retirement concluded that “although age 60 is the average, ideal age of retirement for surveyed workers, more than one-third (35%) of workers and partial retirees indicated they didn’t start saving for retirement until they were over 40-years-old.”
The DFS study also indicated that even workers who did not start saving for retirement until after they reached 50, still wanted to retire at 60.
Monique Tremblay, senior vice-president of Savings and Segregated Funds for DFS, says a few reasons account for why many people start saving for retirement so late. Some individuals, she explains, believe they should pay off all their debts including student loans and mortgages before beginning a retirement savings plan. But, this is a mistake. “In my mind, saving and planning should begin on the first day you have income.”
Lifestyle demands that eat up all available income are another factor explaining why many don’t start saving at an earlier age. Ms. Tremblay believes that this problem is caused by a lack of financial planning.
The study showed that those who do start up a retirement savings plan before the age of 30 generally fall into two categories: couples with children (37%) and the more affluent – those with savings and investments over $100,000 (36%).
The fact that young families tend to start saving earlier than other workers of the same age indicates that budgeting discipline makes all the difference, says Ms. Tremblay. “Young families have to run a tight ship. They’re on a budget.” During the budgeting process, they’ve asked themselves whether they might have room for savings. This is the case even for lower income families with children, she adds.
If young families with all their financial obligations manage to save, then others can also find money to put aside for retirement if they go through the financial planning process, she says. “Until you sit down and analyze your situation, you don’t know where to start.”
Outliving their money
Debbie Ammeter, vice-president, Advanced Financial Planning at Investors Group, says that when it comes to financial planning, “baby boomers in particular should be doing more. Their retirements will be different from their parents and grandparents’ retirements,” she says, noting that trends show boomers expect to have active retirements with travel and other hobbies.
Increased longevity will also impact boomers’ retirements. “Baby boomers are concerned about outliving their money, whereas previous generations were worried about dying too young,” Ms. Ammeter observes.
Other factors that differentiate boomers financial situations going into retirement versus their parents’ generation include fewer defined benefit pension plans, higher divorce rates, multiple families and starting families later in life. This last factor makes a big difference, she notes. “They’re funding education expenses at the time when they’re trying to save for retirement.”
Also, boomers’ parents are living longer and may draw on their adult children both emotionally and financially. And, while it may seem like the double income family that marks the boomer generation should be a boon for retirement savings, it is not necessarily the case. Living with double incomes means that boomers have engaged in higher discretionary spending and have increased lifestyle expectations going into retirement than previous generations.
All this means that boomers “are preparing for a different retirement,” says Ms. Ammeter. She adds that while they may talk of working longer, what they really need to do is talk to a financial planner. Like Ms. Vikmanis of BMO, Ms. Ammeter warns that although a person may intend to work, health problems can prevent this.
Media has helped
Recently, media coverage has helped raise public awareness of the need for boomers to financially prepare for retirement, observes Ms. Ammeter. Now it is time for financial advisors to “bring it home to clients.” As a Certified Financial Planner herself, Ms. Ammeter says advisors should be helping boomers “vision what they really want so they can start putting numbers down…how much they’ll need, their sources of retirement income and determine the shortfall.”
The good news for financial advisors is that boomers appear to recognize the need for their services. According to the BMO survey, just over 90% agreed that having enough money at retirement requires a lot of planning and advice to reach their goals.