Jun 22, 2016
Pattie Lovett-Reid: Managing retirement expectations
ANALYSIS: We don’t have a pension problem today but we could potentially have one tomorrow; that is the driving force behind eight provinces agreeing in principle to gradually expand the CPP.
While a decision of this magnitude isn’t going to please everyone, there appears to be an effort to find a middle ground by increasing the income replacement rate while raising the ceiling on eligible earnings. Since the changes would be phased in over seven years starting in 2019, businesses will have some time to try and adjust for the rising costs and for an economy that has suffered a hit from low oil prices.
Governments have long wrestled with concerns about inadequate retirement savings, and the situation has also prompted banks to urge Canadians to save more. Despite the warnings, statistics indicate that we still aren’t utilizing RRSPs and TFSAs effectively or maximizing the allowable contribution room.
You have to wonder if Canadians are unwilling or unable to tuck some money away for the future. But clearly if we won’t help ourselves, the government will mandate us to do so.
What hasn’t changed are some of the wildcards in retirement: inflation (not an issue today but could be down the road), longevity (what if you live too darn long), and concerns about outliving your money (lifestyle is compromised).
How much money you need in retirement will be driven by what you hope to enjoy in retirement. Government programs were put into place to supplement (not fund) our retirement, so it seems obvious that the need to tuck some money away for your golden years is no longer a luxury but a necessity -- even with the potential increases in CPP. There are those who are vulnerable and need to be helped but the vast majority of Canadians recognize they may need to sacrifice a little today for their retirement tomorrow. The increase in CPP isn’t for the boomers but for generations to come – with that you can only hope complacency doesn’t set in.
Finally, don’t assume that working longer will be the antidote. According to a recent report from JP Morgan Asset Management, you may not have complete control over when you retire so be sure to have a backup plan. You may have to draw your income earlier and make your portfolio last longer.
Here are some of the reasons people have left the workforce earlier than they anticipated: 60 per cent cited health problems or a disability, 27 per cent worked for a company that downsized, other work related issues accounted for 22 per cent leaving early, another 22 per cent left to care for family members, 10 per cent had outdated skills, and 17 per cent wanted to do something else. In many cases it was an isolated incident and could have been due to a combination of reasons.
But here’s the good news: 31 per cent said they left because they could afford too.
As the Chief Financial Commentator for CTV News, Pattie Lovett-Reid gives viewers an informed opinion of the Canadian financial climate. Follow her on Twitter @PattieCTV
