Canadians fret over retirement income

Canadians are increasingly concerned about securing a reliable source of income for retirement, according to the results of the most recent Russell Financial Health Index (RFHI).

Financial markets continued to challenge portfolios in Q4 of 2011, driving retirement income worries to their second highest level since the benchmark was established in early 2008. Overall the index was relatively flat at 47.08, down slightly from 47.47 in the previous quarter.

“Considering that the market volatility we experienced in 2011 is expected to stay with us in 2012, it’s only natural that Canadian investors continue to be concerned about generating a consistent level of income in their retirement years,” says Bob Leeming, director of client solutions, Russell Investments Canada. “Not surprisingly then, the results also show that Canadians are seeing the increasing importance of having a tangible and realistic financial plan.”

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Carrying debt into retirement is a growing financial concern for Canadians this quarter, with anxiety over debt levels having increased steadily over the last year. Last month, Statistics Canada released findings that put household debt levels at 151% of income.

“We can’t control the economy, but we can do something about improving our financial health, and helping to ensure a better financial future,” says Leeming. “Carrying debt into retirement can create cash flow problems, especially if it is variable rate debt, and while this low interest rate environment makes debt more affordable, interest rates can’t remain at current levels forever.”

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Leeming also notes that, “While it can be tempting for people to delay their long-term investment plan, reduce their exposure to potentially risky growth assets or perhaps even flee the market altogether, sound strategies such as reducing debt, combined with implementing a solid financial plan can help Canadians take some of the emotion out of the turmoil created by the financial markets.”

He believes that utilizing the index tool can help clarify which direction planning should take, and that it’s a “great tool for capturing the emotions of investors, as well as a tool which can help shape conversations about effective retirement planning.”

While investors continue to focus on income oriented solutions, fixed income investments and still-popular dividends, Leeming indicates that investors are considering additional solutions as well. These include corporate bonds over government bonds, high yield bonds and with some good advice and guidance, global bonds.

The Russell Financial Health Index gathers its data from a confidential web survey, which takes into account the physical health, personal finances, unexpected events and financial planning of each respondent. Based on a user’s answers and their confidence in their future financial plans, a Financial Health Score is assigned. The score can then be measured against the scores of other Canadian investors who have used the tool.