A penny saved is a penny earned, so said American founding father Benjamin Franklin. But what the late politician didn’t bet on is that we’d be phasing out the penny — and just about everything else we used to know about finances.
Earlier this year, the Broadbent Institute published an analysis of the state of Canadian Seniors finance, called (rather benignly) An Analysis of the Economic Circumstances of Canadian Seniors. Naturally, it’s doesn’t paint a healthy or sustainable picture of Canadian Seniors’ retirement ambitions — rather it seems to suggest that retirees have put their finances on life support.
And that’s more the tip of the iceberg. It gets troublesome as we go deeper.
Where Our Median Retirement Falls
Bear in mind, before you read the following: a retirement income is a savings apparatus that is designed to provides for *all* your living expenses and ongoing costs from the day you retire (which is around age 65-67 on average) to the day you die (average: 81 years across both sexes.) That means a Canadian retiree’s savings would need to last them, on average, 16 years.
Now, knowing what your present costs are on a month-to-month basis, how much in savings would you need? Most financial advisors recommend around $410,000 in RRSP savings, supplementing Old Age Pensions (OAPs) to the tune of $35,000 per year. How easily can Canadians looking to retire manage to save that amount during their working years?
In reality, it’s much lower than that. According to the Broadbent study (which you can read HERE,) 32% of Canadians between 55 and 64 (the pre-retirement age) have less than $1,000 in savings, and only 18% have, at maximum, 5 years of savings to support themselves.
The Median Canadian Senior? Has less than $3,000 in liquid assets they could draw on to support their retirement, before OAP and Guaranteed Income Supplements (GIS) are factored in. Even with them factored in, they only contribute to 60% of retirement savings as of 2015, down from 76% in 1984.
Canadian seniors are facing not just a retirement shortfall, but the reality of real and unsolvable poverty.
What Can Canadian Seniors do to Solve Their Retirement Woes?
When it comes to finance, there’s always two spheres to consider: the long-term national trends and the individual mobility that retirees have. In this case, the former being where the Broadbent Institute began to ring their alarm bells. Systemic poverty is a national concern by any definition of the term, but there are things seniors can equip themselves with to enter into retirement with a little more than they planned.
Start setting something aside now – If you’re still working, you need to start contributing to your RRSP if you haven’t already. A monthly contribution of a few hundred dollars can be difficult to work into a pre-retirement budget, but is impossible once you’ve already stopped working.
Consider putting off retirement – While 65 is the current retirement age, with plans to increase it to 67, there’s a pressing trend towards keeping prospective retirees working longer. And in truth, there are many benefits to doing so. Seniors who work past retirement age in a vocation that is manageable (ie. not hard labor) report greater month-to-month financial security, and an overall healthier mental and social outlook. However, the threat of living below the poverty line may be the most compelling reason to save up while you still can.
Downscale your living arrangements to something sustainable – To some, this means downgrading their dwelling, either through a property sale or an equity release (such as through a life time mortgage). For many Canadians, property is a primary retirement asset which may require that you liquidate some of its value to sustain your standard of living.
Assess your “Longevity Risk” – Living too long shouldn’t be a bad thing, but longevity is a particular risk that retirees short of funds will have to address in one manner or another. Annuities are an unpopular, albeit highly effective, means of securing your finances against the risk of living too long. Life Annuities pay a regular income based on your savings paid-in, and can allow your savings to last much longer than if they were drawn out of pocket.
Figure out how to keep wealth in the family – Trans-generational wealth is one of the most secure means of wealth possible in Canada, as investments such as property and life insurance benefits can be transferred down to your children or grandchildren tax-free if you know how to plan your estate accordingly. This is a rather big issue for seniors, as…
Maintaining Familial Wealth Is A Priority
There may be the unsettling reality that, without a fully-stocked RRSP, retirees may be facing immediate poverty or, at the very least, a very strict and stressful retirement living. While curing that is something that needs to be done well-in-advance of actually retiring, life insurance still serves at a critical juncture to protect Generational Wealth.
Generational wealth is the wealth that is passed between generations, and is a hallmark of prosperous families. Families that have more advantages on the outset can and will find more room to safe, more tolerance for financial instability, and better preparedness for health or family issues down the line. In essence, the ability to transfer wealth through life insurance is a critical component of ensuring that your family doesn’t inherit poverty that you face.
Whether it be to alleviate debt, or to start your children and grandchildren on better financial footing than you had, life insurance for Canadian retirees is also an effective means at reversing declining trends. A lump-sum, tax-free benefit is not affected by your current financial circumstances and can, in effect, raise your descendants to a higher standard of comfort and living than you would’ve been entitled to in your life.