What does retirement really mean?
Obviously, retirement means different things to different people. Traditionally, you started to work at the age of 20 and worked for the same company for 30 to 35 years. The company offered you good benefits and a solid pension plan. Then, when it came to retire, it meant that the same company that you worked for stopped giving you paycheques and instead, you started to get income from both the government and the pension plan. Often, your income in retirement was not far from your income before retirement.
While these examples still pop up from time to time, retirement is not often so simplistic. Retirees face more challenges than ever:
- Pressure on government benefits – The baby boomers have done incredible things since 1946 to shape the economy, our culture and the country in different ways. With the bulk of these boomers heading towards retirement, there is a fear than governments will fall short of being able to provide effectively, retirement income. Government pensions have always balanced inflow with out flow and soon we will have more outflow than inflow and that’s a real concern of the future. Will the government be able to continue the retirement income programs as they are today?
- Starting careers later because of more education (post secondary) – Canadian used to start work earlier like the age of 18 to 20 but today, many believe that you must continue the education beyond high school to get better jobs and have more opportunity. As a result, we are starting to work later and therefore having to prepare for retirement later. To complicate things further, post secondary education is more expensive and people are entering the work force with more debt. It’s just not easy getting ahead when you are starting behind.
- Fewer company pension plans – Pension plans have become a cumbersome benefit for corporate Canada to offer. As a result, you are seeing more Group RRSP plans being offered instead of the traditional pension plan
- More defined contribution pensions as opposed to defined benefit plans – And then with the pension plans that remain, many are defined contribution plans as opposed to defined benefit plans. Defined contribution plans are easier to understand and manage but the defined benefit plans really rewarded the long-term loyal employee.
- It is unlikely that you will work for the same company for more than 10 years – That being said about pension plans, it is not all that bad considering the typical employee is far more mobile today. People are changing jobs every few years because of our now society and the number of opportunities in the workplace. Unfortunately, employee loyalty has taken a back seat.
- Societal desire to retire earlier – In the 70’s and 80’s the typical retiree retired at the age of 65. The age has been a longstanding benchmark for Canadians for retirement. However, the average retirement age in the 90’s was 62. Everytime I sit down with people and ask them when they would like to retire, the answer I get most often is age 55. London Life’s Freedom 55 ads have certainly made impact. As a society, we all desire to retire early for the ‘best days of our lives’.
- Expect to live longer – Life expectancy is steadily increasing. The message is we are healthier and with the advances in science and technology, the trend for longer lives should continue. For most of us, that also means we have to make sure our money will last for a longer period of time.
- More self-funded retirement – So all of these issues boils down to the fact that we have fewer years to earn and save money and more years to spend it. Less and less of that money will come from the companies we work for and the government so more and more of our future lies in our ability to self-fund our retirement. The good news is we have control over our own future and it’s your responsibility to do something about it!