Standard of living what it’s all about
You want to retire with the same standard of living you’ve grown used to in your lifetime. Who wouldn’t?
The question is how to fund those years. You can work longer, save more or, as certified financial planner Lise Andreana jokes, win the lottery.
“There are a huge percentage of people who think that’s going to happen,” says Ms. Andreana, with a laugh.
The CFP, who works for Continuum II Inc. i n Ontario’s retiree-laden Niagaraon-the-lake region, says she has quite a few clients facing a dilemma.
There is an increasing reality for her clients that they will have to work longer to make the retirement they want work — and that’s the ones not affected by changes that will eventually raise the age of Old Age Security eligibility from 65 to 67.
“The big crunch is the rise in average life expectancy,” Ms. Andreana says. “We used to hope for 10 to 15 years of life expectancy after retirement and now we are looking at 30 years.”
She says the “big new thing” is people just don’t actually retire in the same way. “Retirement is no longer an event, it’s a process. Part of the process is scaling back on work, doing different work or part-time,” she says, adding that for some the work is just to keep busy while for others it’s a pure cash-flow decision.
More Canadians are leaning toward the decision to continue to work. Statistics Canada says the employment rate for men 55 or older was 30.5% in 1997 but climbed to 39.4% by 2010. For women the rate rose from 15.8% to 28.6% during the same period.
Ms. Andreana says the theory is people can live on 70% of pre-retirement income. “But a lot of people don’t want to because they don’t want to change their lifestyle,” she says.
The other pressure has been shrinking stock market returns. “In the last decade, it’s been very depressing,” she says. “When I’m planning, my rate-of-return assumption is 4% with a 2% inflation rate.”
Ultimately, if you think of yourself like a business, you have similar options to anybody running a company — increase revenue or reduce costs. The good news, says a study from pension experts Morneau Shepell, is there will be plenty of jobs to boost your revenue side. In fact, the company predicts a labour shortage in the coming years.
“It’s starting to evolve right now. Since the late 1990s, the average retirement age in Canada has gone from 61 to 62.1,” says Fred Vettese, chief actuary at Morneau Shepell. “Something not captured in the retirement age statistic is people working part-time.”
He says it’s up to Canadians to report themselves as retired and wonders how many actually do. “There seems to be a certain kind of a stigma in Canada attached to telling people you are retired. The R word just isn’t used,” Mr. Vettese says.
The idea that we are having some type of retirement crisis just doesn’t wash because it’s based on the small number of people with pensions, he says. Only 22% of workers in the private sector are enrolled in a pension while only 31% of Canadians contribute to an RRSP.
“It sounds like we must have crisis,” Mr. Vettese says. “The question is not how do we get people to save more money so they keep on retiring the way they do. They are asking the wrong question, it’s more of how can we get people’s minds around staying in the workforce.”
He predicts there will soon be three phases to retirement. In the first, you might cut back hours and work part time and use that period to travel and enjoy your leisure time. “That could last into your 70s,” Mr. Vettese says. “In phase two you might become more sedentary and putter around the garden and that’s in your mid 70s. In phase three, you are pretty well incapacitated and you just use your money mostly on your medical needs.”
It may sound like you are working more than ever in his scenario but you really have to consider it in the context of your entire life. In the 1960s, you worked about five years for every one year of retirement while today the average is 1.6 years for every year of retirement.
Doug Porter, deputy chief economist at the Bank of Montreal, says the weak returns in the stock market and low interest rates have probably done more to delay retirement in the country than anything else. “It’s already playing out. Not only is it delaying retirement, it is forcing some back into the labour market,” says the economist, noting the rise in the participation rate for those over 55.
He agrees the fix is in for people to work longer because there is little willingness to save money. “If anything the savings rate is actually coming down,” Mr. Porter says.