Boomers expect to keep working
Few plan to retire early, but it may happen anyway
Jonathan Chevreau, Financial Post
Published: Wednesday, November 07, 2007
Early retirement isn't in the cards for most Baby Boomers, according to Montreal-based Desjardins Financial Security. Its poll of 1,505 Canadians finds the "all play and no work" variety of retirement is on the verge of extinction.
Among those already retired, 10% still work at least part-time, while 54% of workers beyond age 39 are planning a gradual retirement.
While Desjardins seems to conclude the Boomers' retirement experience will be different than their parents',Mercer worldwide partner Malcolm Hamilton is less sure. He says working Canadians may think they'll retire gradually but may one day discover they're tired of working, lose their jobs or no longer be healthy enough to work.
Generally, Desjardins finds the older people are when surveyed, the later the expected retirement age. Most say the ideal is 60 but university grads expect to work past the traditional retirement age of 65.
Desjardins senior vicepresident Monique Tremblay says the "ideal" retirement age is a moving target, especially for those who had children late in life.
More than 80% expect to be in debt when they enter retirement yet are complacent about it. Tremblay says they're indulging in "magical thinking." Few consider the long-term impact of inflation and "could be in for sticker shock when it comes to food, housing and other basic necessities."
Fidelity Investments Canada recently suggested retirees will need to replace at least 85% of the income they generated when working, a tad above the consensus 70%.
In an interview yesterday, Tremblay went one better, suggesting a 90% replacement ratio might be a suitable target for many Boomers. Every case is different: those who plan to travel the world and stay in plush hotels might need to replace 125% of their working incomes, Tremblay says.
Those who don't consider all possible risks may be in for an unpleasant surprise when they try to retire.
One is "market risk" -- the risk the stock market may fall just as you enter retirement with a portfolio heavy in stocks or equity funds.
York University finance professor Moshe Milevsky dubs this the "retirement risk zone."
Milevsky notes the sequence of returns early in retirement can dramatically shorten or lengthen the number of years portfolios can generate enough income to live on.
Another is longevity risk: the risk of outliving your savings. Dejardins finds only 38% worry about this.
One tool for mitigating this risk has been annuities. Desjardins has just unveiled a new variable annuity product called Helios. It aims to tackle some of these problems, although it's not mentioned in the survey. Unlike the lifetime 5% annual income promised by Manulife's Income Plus, Helios aims only to provide a 7% annual return for 14 years. But Tremblay says that could help people bridge the income gap between ages 51 and 65, when government pensions kick in. Or it would bridge the gap between 57 and age 71, when retirees begin to draw income from their newly established RRIFs.
Tremblay believes retail investors need financial advisors to help them plan retirement. But Desjardins' regional vice-president of sales Michael Aziz quips most put more time and care into planning an African safari. They take a "do-it-yourself " approach and fail to arm themselves with the "knowledgeable assistance" needed for a financially predictable retirement
