Are we headed towards a retirement crisis? Maybe.
Over the years, the practice of companies mailing out monthly cheques to retired employees has been on the decline while at the same time the pension funds that remain face challenges, particularly in this low interest rate environment. It comes as no surprise the once coveted defined benefit plan has been widely replaced, if at all, by a defined contribution plan. Gone is the guarantee of retirement income for life and replaced with a do-it-yourself type of retirement planning.
The long standing question has been, how will I know if I have enough money to see me through my retirement?
A new report from The Healthcare of Ontario Pension Plan (HOOPP) in conjunction with Abacus Data reveals a challenge: Canadians talk about retirement savings but that isn’t being translated into action.
The report – based on a survey of 2,500 Canadians that was conducted in April – indicates that concerns about retirement are more prevalent than concerns about health, debt load and even job security. And while 46 per cent of respondents said they have been able to save more than they might otherwise during the pandemic, only 37 per cent managed to save anything for retirement in the past year — down five points from a year earlier.
According to the survey, 55 per cent ranked day-to-day living costs as their greatest concern. Just behind that was fear about having enough money in retirement.
I worry about this a lot.
We could spend a third of our life in retirement and the wild card for many Canadians is simply funding it. Sadly, for many the day will come when their ability to earn a living will end and the question remains, what happens next?
In an ideal world, some form of retirement planning would be put into place. The majority of those surveyed (71 per cent) said they are willing to forgo a higher salary for a pension plan. However, just because employees would like this doesn’t mean employers will offer it.
It is important to remember that government programs were put into place to supplement your retirement, not fund it.
But there is one way you could create your own pension using the government plans. According to Bonnie-Jeanne MacDonald, the director of financial security research at the National Institute on Ageing, delaying your CPP/QPP benefits for as long as possible is essentially purchasing an inexpensive, inflation-indexed and very secure pension plan. In other words securing income for life.
Bottom line: It is important to control what you can. You are typically eligible for CPP at age 65, and with penalty as early as age 60. However, if you delay claiming your benefit to age 70, you could get 150 per cent of the income you would have received at age 65.
In other words, annuity or payment for life eliminates the fear of outliving your money over a lifetime that could be much longer than you planned.