Canadians lack retirement income plan: Survey

A majority of Canadians do not have a retirement spending plan in place, but a majority of affluent Canadians do, finds a new survey commissioned by Desjardins Financial Security.

On behalf of DFS, SOM Surveys questioned roughly 1,500 Canadians and found that 66% do not have a retirement spending plan in place. With the boomers fast approaching retirement, many advisors are transitioning a large portion of their practice from managing asset accumulation to income planning, so these results point toward a wealth of prospecting opportunities.

A closer look at the statistics shows that those without a plan are predominantly in lower income earning brackets. Of those respondents who earn between $20,000 and $30,000 per year, 73% do not have a retirement savings plan, and 69% of those who earn between $30,000 and $50,000 a year also lack a plan.

The percentage of those with no plan significantly drops at the next income bracket of $50,000 to $70,000 a year, where 50% have a plan, and moving into the coveted mass-affluent space of $70,000 to $100,000 earners, only a minority (37%) are without a plan.

The survey’s results seem consistent with a recent study by the Financial Research Corporation in the U.S., which found that income planning space for affluent and high-net-worth clients is largely saturated.

What this means is if there is opportunity in income planning, it’s serving clients in the lower end of the market. The problem is that unlike buy-and-hold mutual fund strategies in the accumulation stage, income planning is time intensive. This makes advising a large book of mass-market clients difficult.

The survey also showed that even affluent Canadians had serious misconceptions about their retirement.

Claude Paré, senior director of product development and marketing at DFS, says his company was surprised to discover how few Canadians understand the importance of retirement factors like longevity and inflation, even in the boomer generation.

“In general, we were surprised that Canadians were not overly concerned with financial risks in retirement, coupled with the fact that in general they believe they will live longer than their life expectancy,” Paré says.

Paré notes only 38% of the 40+ age group and retirees are concerned they might outlive their savings, despite research showing boomers will likely live longer than any previous generation. Only 48% of respondents are concerned they will be able to keep the value of their savings and investments up to the rate of inflation.

Possibly the most alarming statistic is that 80% of the respondents expect to enter retirement carrying debt.

Paré says the industry is beginning to get on track with product solutions that address the income needs of retirement, many of which can be used to serve clients in both affluent and lower-income brackets.

“One product that saves time is certainly an annuity because it guarantees an income that is for a lifetime,” Paré says. “Clients will need some liquidity for emergencies and should not be invested entirely in annuities. With an annuity, there’s no need for rebalancing the asset class, so it’s one product that fits very well.”

Paré says portfolio products are also useful because of their ability to rebalance the asset mix.

Cognizant of advisors’ need for all-in-one income solutions in all demographics, Paré says DFS’s recently launched guaranteed minimum withdrawal rider on its Helios line of segregated funds has the lowest minimum investment in the Canadian market.

“It only takes a minimum investment of $5,000 in one of our Helios funds to get the GMWB, which is the lowest [price] in the industry,” he says.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com

(11/06/07)

Mark Noble