Retirement math still fuzzy

Most Canadians feel they will have enough income to cover their necessities in retirement, according to a poll conducted for RBC, but for most, a “dream retirement” seems out of reach.

Ninety percent of respondents said they are financially prepared for a fairly routine lifestyle after they exit the workforce, while 25% said they will have enough money to fulfill their retirement dreams

The poll also found that while retired Canadians are spending less in their first year of retirement, it is still more than they expected

Seventy-five percent of retirees polled didn’t know how much they spent in their first year of retirement, virtually unchanged since the last poll in 2008 (76%). Those who did manage to keep tabs on expenses reported spending $35,000 in their first year of retirement, down from $51,000 in 2008. Still, 52% of respondents spent more than expected, up from 46% in 2008.

“How much money you’ll need in retirement depends on how you’ll be spending your time, with many Canadians underestimating the amount they will need,” says Lee Anne Davies, head of retirement strategies with RBC Royal Bank. “Financial planning is more than just number crunching and your retirement is not a single phase of your life, but a series of stages. A personalized financial plan can look at options to make your nest egg last and help ensure your retirement needs and dreams are met.”

The good news is that current retirees seem more confident of their finances than those heading into retirement. The survey found that Canadians who have not yet retired were most worried about having enough savings (48%), compared to 29% of retirees.

Both pre-retirees and retirees are concerned about maintaining their standard of living (40%), and retirees are more likely to be worried about healthcare (33%) than pre-retirees (28%).

“All of these concerns are valid,” says Davies. “Whether retired or not, your life will be somewhat unpredictable at times and you need to be ready when life throws you a curve ball. This is where having a plan can provide peace of mind — you’ll know you’ve considered the unexpected and you’ve taken the steps to save for your retirement.”

Many boomers are considering delaying retirement, hoping to shore up savings eroded in the market meltdown of 2008-2009. Almost two-thirds (63%) of current boomer employees said they would like to either ease into retirement, or stay on with their current employer past a hard-stop date, while 59% would prefer part-time work in this transition period.

But they’d better double check that plan with their boss.

Only 33% of employers say they would be very likely to allow their employees to stay on past a traditional retirement age, and even fewer (21%) would be very likely to allow employees to ease into retirement through part-time work.

The problem is, boomers aren’t talking. According to the survey, only 25% have actually shared their retirement intentions with their employer.

Suzanne Armstrong, co-founder of retirement planning consultants Life’s Next Steps, says that it’s the employee’s job to know what they’re looking for, and that a retirement roadmap can help to focus the initial employer/employee conversation and set the agenda.

“We see a pattern — participants develop their roadmaps to retirement, they determine what they want to do, develop timelines and action plans and are ready to go,” she says. “Then they hit this huge stumbling block — how to discuss their retirement plans with their employers.”

(01/18/10)