Here's a depressing thought: The closer you get to retirement age, the less confident you may feel about your financial situation. Sadly, that's what a Leger survey commissioned by mutual fund giant Mackenzie Investments seems to suggest.
While 40 per cent of Canadians told pollsters they believe they're in a better financial position than they were 10 years ago (when a similar poll was last conducted), “of those closest to retirement — those aged 65 and older — only 25 per cent per cent echoed this sentiment.”
Let me guess: The 25 per cent who do feel confident are likely members of those increasingly rare (especially for younger workers) employer-sponsored defined-benefit pension plans. Turns out, that's more or less the case confirms Carol Bezaire, Mackenzie's vice-president of Tax, Estate and Strategic Philanthropy.
The rest of us are forced to save in RRSPs and TFSAs, but because they are voluntary, many choose not to use them, so don't benefit from the “forced saving” of employer pensions. And even those who do manage to save are confounded by minuscule interest rates or have to take their chances on volatile stock markets.
Meanwhile, that confident minority of 25 per cent “are in a position where they have pensions or a group plan where they have an incentive to save because their employers help them,” Bezaire said in a phone interview.
While 70 per cent of public-sector workers enjoy the classic DB pensions that guarantee a set payout for life, only 10 per cent in the private sector do, Bezaire confirmed, “and it's trending even lower for private-sector pensions.”
The survey of 1,564 (conducted shortly before the U.S. election) includes everyone from millennials to baby boomers. But many millennials are not yet full-time employees and so don't get the usual workplace benefits or participation in employer pensions or group RRSPs, Bezaire said.
Instead, “they may be holding down two part-time jobs.” Little wonder many millennials are still at home in their 30s and require parental financial assistance.
Even so, half of Canadians aged 18 to 34 are optimistic they'll have a better lifestyle 10 years from now. Bezaire doesn't think young people are looking far enough ahead to factor in the newly expanded Canada Pension Plan.
However, she does think tax-free savings accounts (introduced in 2009) hold a lot of appeal for millennials because “they can tap into them whenever they want. Many aren't using their RRSPs at this point.”
But their parents are more pessimistic. Only about a third (less than 35 per cent) in the 55-64 and 65-plus age cohorts believe they are definitely on track to meet their retirement goals.
One problem is “grey divorce,” Bezaire said. The survey looked at singles, married couples, those who are divorced or widowed and with or without children, and “grey divorce is a big thing that hits lifestyles for sure.” As most financial advisers will verify, divorce late in life is a fast route to cutting your net worth in half, as well as your pension income.
The problem is the majority of Canadians — a whopping 58 per cent — don't even have a financial adviser around to point this out. Mackenzie's press release attributes this “pessimistic perception” to a lack of confidence about retirement planning and being able to sustain their lifestyles. Only 16 per cent feel confident in their RRSP contributions and an astonishing 72 per cent do not have a written financial plan.
Fully 25 per cent of the 18-44 group feels confused about retirement investment options. And financial literacy is low across all age groups: among those who don't have an adviser, only 35 per cent know mutual funds can be held in RRSPs. It's double that (70 per cent) for those who have an adviser.
Add in higher expected life expectancy and my personal conclusion is that those lacking DB pensions should strive to continue working at least part-time in what used to be called the retirement years. The book mentioned below (which ) is on just that theme, as is one yet to be published that comes to the same conclusion: Calum Ross's The Real Estate Retirement Plan. Expect many similar titles if these trends continue.