Confusion, worry cloud retirement plans: polls

What recession?
Volatility or not, I’m retiring on time.

That was the prevailing attitude uncovered by a Scotiabank study that found 73% of Canadian investors haven’t changed the age at which they plan to retire, regardless of the past two years’ economic uncertainty. Of the 22% who did say they’d delay retirement for a few years, well over half (56%) were between 45 and 64 years of age.

“It’s encouraging to see that the majority of Canadian investors have not changed their retirement plans, which indicates that they remained invested during 2009 and stuck to their long-term plans,” says Beverley Moir, senior wealth advisor with ScotiaMcLeod. “Those who remained focused on the long-term likely benefited from the strong market rebound . . . allowing them to recover from the downturn.”

Nearly half (49%) of surveyed investors say they plan to retire before age 65, up from 43% when the survey was conducted in 2008. Further, the number of Canadian investors saying they don’t plan to fully retire fell by half (5% in 2009 compared with 10% in 2008).

“Many investors are sitting on the sidelines in cash, bonds or GICs; however, the current historic low interest rates will not provide the growth needed for many to reach their set retirement goals,” says Moir.

Workers are worried
Meanwhile, a TD Retirement Savings Poll found many working Canadians are experiencing some conflicting emotions on the retirement front.

While more than one-third (36%) say they can’t wait to stop working and enjoy life, 30% say that even thinking about saving for retirement makes their hearts pound because they haven’t saved enough.

TD’s survey found that 91% of Canadians have fears about retirement, with 52% of working Canadians under 65 scared they haven’t saved enough for a comfortable retirement.

“It’s not surprising that so many people have retirement worries,” says Carrie Russell, senior vice-president, core banking and payments with TD Canada Trust. “What is alarming is that 20% of people surveyed said that instead of contributing to an RRSP; they are counting on either the Canada Pension Plan, an inheritance or a lottery win.”

The majority of Canadians are making a conscious effort to save for retirement, with 64% surveyed saying they contribute to an RRSP. Of those Canadians who contribute, the survey found that 53% do so through a fixed monthly deposit, 29% make one lump sum payment a year and 18% use a combination of the two.

“An RRSP is the first step many Canadians take toward meeting their goals for retirement — the important thing is to take that step, even if retirement feels far away,” says TD Waterhouse financial planner, Nathalie Amzallag. “Putting aside some money every month through a pre-authorized payment plan makes saving more manageable and allows you to benefit from the power of compound interest.”

Adds Russell, “By starting early, you can take advantage of a number of benefits, including reduced income tax and the ability to borrow from your RRSP for your education or a down payment on your first home.”

While there are benefits to starting contributions early, the poll found that 41% of Canadians between the ages of 18 and 34 do not currently contribute to an RRSP.

Calculating needs
When it comes to how much Canadians need to finance their retirements, confusion reigns, says a special report from BMO Retirement Institute. Some think the magic number is at least $550,000, while still others believe they need to save at least $1 million.

“Determining how much money you will need to save is unique for each individual, and it is often more complex than using a simple theory. There is no one-size-fits-all solution and common retirement savings theories should be carefully reviewed before being adopted,” says Tina Di Vito, director, retirement strategies with BMO Financial Group and author of the special report, Saving For Retirement: How Much Is Enough?

Di Vito addresses the six most common theories and strategies that require careful consideration. These include:

• the belief that retirement can be adequately funded through government pay-outs and public pension plans such as the Canada Pension Plan;
• reliance on company-sponsored pension plans;
• the theory that one needs 70% to 80% of their pre-retirement income;
• the “magic” $1 million dollar assumption;
• Using 4% to 5% of accumulated savings annually during retirement; and
• planning to delay retirement in order to afford retirement.

So, how much is enough? According to Di Vito, there are many considerations, including:

• the age at which a client wishes to retire;
• the desire lifestyle;
• the client’s health;
• any outstanding debts going into retirement; and
• expected retirement expenses, such as housing, food, etc.

Di Vito stresses it’s important to know retirement goals and objectives, identify sources of retirement income and start planning as early as possible.

“You may find that your retirement goals and lifestyle choices change over time and, consequently, the amount of money you need will change,” she says. “Once you know what you are saving for, there are three key components to a successful retirement: save diligently, consult a professional advisor and review your plan on a regular basis.”

(02/04/10)