Every day, more than a thousand Canadians are turning 65, the traditional age of retirement.1 So how are Canadians doing when it comes to retirement planning?
In short, okay. But they could be doing much better.
The results of a retirement readiness survey gives a snapshot of retirement readiness from more than 16,000 people in 15 countries. The New Social Contract: a blueprint for retirement in the 21st century, authored by the Aegon Center for Longevity and Retirement, calls for decisive action on retirement planning in the areas of saving, flexible retirement ages, health, and financial literacy.
Most Canadians won’t be depending on the government to pay for their retirement (40% from government, 27% from employers, and 33% from their own money). [tweet this]. In comparison, in Spain, 66% will depend on the government, 11% from employers, and 23% from their own money. But people in this country still expect most of their retirement income to come from the government and their employers – in fact, a total of two-thirds from these three broad sources:
Notice that Canada’s results are similar to those in the United States. People in India expect to rely on their own savings and investments, more than on the government.
The trend toward relying less on government for retirement funding further manifests itself in a loss of faith in what retirement will look like in the future. Nearly half of people globally think that future generations of retirees will be worse off than people who are currently retired. Canada’s result at 46% is close to the global result of being worse off, with only 9% of Canadians believing they’ll be better off and 13% saying they don’t know.
Compare Canadians to Chinese and Japanese respondents. More than half of the survey respondents in China believe future generations will be better off in retirement. Conversely, almost 6 out of 10 Japanese respondents believe the next generations will be worse off, with a startling low 3% believing they’ll be better off.
Even though almost half of Canadians think the future of retirement won’t look as good as it does now, many aren’t doing one of the most important things to prepare for retirement. Only 17% have a written retirement strategy; 38% don’t even have a plan.
Results in the United States are similar to Canada. [tweet this] Meanwhile, Polish respondents have the lowest result (5%) of respondents admitting they have a plan, among the 15 countries participating in the survey. Chinese respondents seem to need an extra push to complete the retirement planning process, since they have the highest result (61%) for having a plan but not writing it down.
Calls to action
Even this small selection of results shows that many Canadians could benefit from a reality check about government support in retirement, and, could use more confidence about the future of retirement. They also need to create a written plan. The Retirement Readiness Report calls for us to forge a new social contract that is sustainable, resilient, and adaptable to our changing times. It contains nine essential features; four are particularly relevant to Canadians.2
- Ensure universal access so people can save for retirement. The financial services industry, community groups, and other non-profit organizations need to develop more long-term solutions and services to encourage Canadians to save more.
- Many people, including Canadians, aren’t able or willing to retire at the traditional age 65. So, governments and businesses need to be more flexible, helping citizens and employees transition into retirement. That could mean establishing flexible working hours, or giving meaningful jobs to older workers.
- Canadians and people in many countries are living longer, but many aren’t doing enough to ensure they’re protecting their long-term health. In fact, governments, employers, healthcare providers, and other organizations must convince Canadians that eating healthier and exercising more will help set them up for more enjoyable retirement years.
- Telling people to do more to protect their financial future isn’t enough. Schools, governments, and employers need to increase financial literacy so Canadians can make the right decisions about their investments and retirement savings.
You have a crucial role in preparing your clients and working through these calls to action. You can help them budget to save more for retirement, think about what they’ll do in retirement or the later stages of their lives, consider ways of living healthier lives so they’ll be able to enjoy their potentially long retirement, and learn more about insurance and investments.
You could start with a primer for guaranteed products. Solutions include segregated fund products, also known as guaranteed investment funds (GIFs), and life annuities. Mutual funds can provide potential growth.
Segregated fund products/guaranteed investment funds (GIFS)
Sun Life GIFs can help clients meet specific needs during different life stages, such as:
- building and protecting savings;
- reducing clients’ risk with guarantees on their investments; and
- providing traditional insurance advantages, including named beneficiary options, potential creditor protection, and avoiding probate.
Life annuities, a subset of payout annuities, pay guaranteed monthly incomes as long as clients live, in exchange for an upfront premium. Even in this low interest rate environment, life annuities offer attractive income rates. Depending on a client’s age, it’s possible to achieve guaranteed income rates in the 4% to 6% range for life, or higher.
Further, life annuities and GIFs are powerful tools that can help address the anxiety clients might have about outliving their money in this very low interest rate environment. With income rates in the range of 4% to 6% of the premium paid, it’s unlikely that any other asset can generate such returns without taking unnecessary risk. When you mitigate retirement risks, you can help clients achieve lifetime financial security and gain confidence they’ll enjoy in the years after age 65.
Your clients can own mutual funds as part of their retirement plan in registered accounts like RRSPs, RRIFs, TFSAs and some pension plans. They could hold mutual funds in tax-advantaged retirement income plans as a way of participating in markets.
In retirement, mutual funds can provide the growth potential that doesn’t come from a product such as an annuity. For many investors, mutual funds can help to cover inflation risk and make clients’ money last as long as they live.
Check out recent articles on the Retirement Resource Centre to help you start retirement conversations with your clients:
- 6 ways to preserve wealth for the future – Heather Rennie, Certified Financial Planner and Segregated Fund Product Director, discusses how financial, retirement and estate planning can help preserve clients’ wealth for future generations.
- 6 tips to help clients save and retire debt-free – You can use your expertise and trusted advice to help retirees, clients approaching retirement, and even millennial clients save and prepare for retirement.
- Two ways people fall short in retirement planning – Find out how clients can avoid making these retirement mistakes.
- With the Retirement savings calculator, you can show clients how much they’ll need to save for retirement and if they’re on track to meet their retirement savings goal.
- Use the consumer-facing Annuity calculator to show clients an estimate of how much retirement income they’ll get from a life annuity.
- Learn more about intergenerational wealth transfers, legacy and tax planning, retirement planning, and financial planning by contacting a member of your Sun Life wealth sales support team.
1 Data tables, 2016 Census of Population, Statistics Canada. For this Census, 421,370 Canadians were age 64, meaning an average of 1,155 would turn age 65 every day in 2017.
2 The following four points are from The New Social Contract: a blueprint for retirement in the 21st century, Aegon Retirement Readiness Survey, 2018, p. 4.