What retirement?

By Gérard Bérubé

The 2004-2005 RRSP season reminded us of the financial and social issues raised by the aging population. With every passing year, successive RRSP campaigns and polls confirm that more Canadians plan to keep working past their retirement age. However, a growing number will be doing so by choice not necessity, as if the concept of retirement itself was suddenly obsolete. After all, who is to say everyone should retire at 65?

An increasing number of studies are focusing on the aging phenomenon. As far as personal finances are concerned, it is now widely accepted that retirees are likely to outlive their capital. This new reality factors in both the effect of inflation, which reduces the amount of money available for retirement, and longer life expectancies.

While actuarial calculations are increasingly based on a 90-year life expectancy, a plan B should be prepared in the event many Canadians live beyond that age. The plan will have to consider the need for post-retirement capital and the financial burden caused by sickness and invalidity, especially since it will be difficult to depend on the children of nonagenarians for their support because they will be between 65 and 75 themselves.

The Investors Group has el-oquently illustrated the situa-tion. Since life expectancy is officially estimated at 79.7 years, people aged 80-plus now make up the fastest-growing segment of the population in Canada.  their numbers grew by 41% between 1991 and 2001, and should rise to 43% between 2001 and 2011, for a total of 1.3 million people. In 2001, there were 3,795 centenarians, 21% more than in 1996, and their num-bers are expected to in-crease 25-fold in 2050, to reach 95,000.

It is surprising then that a TD Waterhouse poll released during the 2004-2005 RRSP season showed that a large majority of Canadians viewed their retirement calmly and serenely.

The brokerage firm even goes so far as to report a “lack of concern” about retirement savings, which runs counter to the findings of all previous polls. It’s as if long-held ideas about life after 65 were suddenly being cast aside, says TD waterhouse, which believes that “the findings are further evidence of a major shift in how Canadians think about retire-ment.” Clearly, Canadians no longer seem to be stressed out by retirement. Certainly, two-thirds have RRSPs, but with an average investment of $65,000, they will not have saved nearly enough. And a vast majority of Canadians admit they will not have the funds required to last through a prolonged retirement or that they are not saving enough.

So how can their attitude be explained? Irony or realism? Definitely realism. Many Ca- nadians are aware that life expectancies are rising and that they will end up working few-er years than their parents because of their longer years of study.

Also, many baby boomers are sandwiched between the high cost of their children’s post-secondary education and the financial support to their aging parents, a situation that reduces the amount they can set aside for retirement. They also point to the rapid decline in the defined benefit pension plan — a model that more and more companies are increasingly spurning — and to lower expectations for returns on investments, now about 5%. Gone are the days when you could expect to easily earn 10% a year and double your capital in seven years thanks to compound returns.

The TD Waterhouse poll echoes a general trend among Canadians indicating that they have modified their retirement plans and have decided to work longer based on impending la-bour shortages. More specifically, “one-third of Canadian investors who have not yet retired plan to be working either part time (25%) or full time (8%) past the mandatory retirement age.” Almost three-quarters of those who see their working lives stretching out in-definitely plan to do so out of choice rather than necessity.

Yet only three years ago, a majority of Canadians thought they could combine early retirement with part-time employment. What caused such a major shift in so little time? The answer can be found in rising healthcare costs coupled with reduced levels of govern-ment support.

A survey by Desjardins financial Security found that the fear of ill health and the pressure of healthcare costs on retirement savings are keeping people in the workforce longer. And so TD Waterhouse point-edly asks: retirement, what retirement?

Gérard Bérubé is editor of the Économie et finance section of Le Devoir in Montreal