Pattie Lovett-Reid: When will you have enough to retire?
Entitlement can be a dangerous thing. Government retirement programs put into place to supplement – but not fund – our retirement were once arranged in a way to reflect when people lived another 10 to 15 years after they stepped away from their careers.
These programs were considered a safety net, but for some people today it is viewed as a right. The fact is, we are living longer and according to the Canadian Institute of Actuaries, a woman who was 65 in 2016 has an increased life expectancy of 22.5 years, while men at that age can expect to live about another 19.9 years.
We are living longer and you can’t argue with those facts. Times are changing and the CIA recommends we raise the retirement age for the Canada Pension Plan, Quebec Pension Plan and Old Age Security eligibility from 65 to 67. This isn’t about sustainability of the programs, nor is it about improving the government coffers. Changing the retirement age is about increasing the payout for an aging demographic where company pensions are scarce, rates are low, savings are lacking and retirement costs are escalating.
Increasingly, one of the big wild cards in retirement is the risk of outliving your money. The fear is real for many Canadians and some are taking control already by working longer. However, the reality is that not everyone is working longer because they want to, but but because they have to.
While the risk of outliving our money is real due to our longer life expectancies, an additional concern is the erosion of our purchasing power should inflation creep higher.
Retirement could now represent a third of our lives. It is only natural to ask yourself: Are you really ready to retire? Before you hand in your notice, consider the following questions to see if you are as retirement ready as you think – regardless of any recommendations of changing the government’s view.
- Are you having a hard time paying your bills and making ends meet? If the answer is yes, you simply don’t have enough money to retire.
- Have you retired your debt before you retire from your job? Don’t forget that debt plus living expenses can be a lot in retirement.
- Where is your money coming from and how much will you receive? You need to be buttoned down in terms of cashflow.
- What expenses will increase and what expenses will decrease?
- Longevity risk requires a plan that includes health insurance. You could live longer than you think.
- What’s the inflation outlook? Retirement could last 30 years and inflation will erode your purchasing power.
- Are your investments ready for this big life change? Shift the composition of your portfolio from wealth accumulation to wealth preservation, but allow for some growth.
- Are you terrified about what you will be doing in retirement, or more importantly, not doing?
At the same time, this debate on when Canadians should expect to retire may be an opportunity to change our mindsets.
Retirement by definition can mean to disappear or become reclusive. No one aspires to that. Changes to retirement planning are long overdue and I think we should remember to celebrate living longer.
Working longer doesn’t have to be a bad thing. You might be able to find a way to love your job and love working so much that you realize you’re just not ready to retire – full stop.