Global professional services company Towers Watson has issued its latest Defined Contribution (DC) Retirement Age Index.
It shows how changes in capital market returns and annuity purchase prices are affecting the potential retirement age of a Canadian worker in a benchmark DC plan.
If a 60-year old DC plan member wanted to match the retirement benefits of a benchmark DC member who retired at age 60 at the end of 2007, for instance, they’d have work much longer today to reach the same level.
After 20 years of contributing, the member would need to work until the age of 68—extra eight-and-a-half years longer than the person did in 2007.
Read: Is retirement planning a waste a time?
Michelle Loder, Canadian DC Business Leader at Towers Watson says, “From a retirement planning perspective, the Index results really demonstrate the risks that DC plan members face in trying to juggle long-term investment assumptions with what we call end-point sensitivity.”
This refers to the impact the timing of a decision to retire can have on the funds available, due to changes in both investment returns and annuity prices. The Index’s 2007 benchmark plan member experienced an annualized average investment return of 7.2%.
In contrast, a plan member with the same length of contribution history, but who retired on September 30, 2012, experienced an average return of 6.3%.
Read: Timing retirement
As Loder notes, “0.9% may not sound like much, but it actually can translate into tens of thousands of dollars that will not be available.”
“[Upcoming retirees] need to keep a long-term focus, and periodically review and adjust their levels of contribution and investment choices,” says John McIntosh, Towers Watson’s Canadian plan design issue leader.
(Planning) help wanted
Overall, less than 40% of responding workers think their employers are doing a good job of providing retirement tools and information.
For employees nearing retirement (age 50 plus), the number decreases to 30%.
McIntosh says, “Our research shows that employees value personalized outreach such as face-to-face meetings and seminars, independent financial advice and personalized on-line modeling tools that reflect their specific pension benefits.”
So, offer your clients tips and options based on their specific goals and desired lifestyles. If possible, find case studies and data that shed light on issues they’ll likely face as well during retirement.
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