Retirement plans threatened by disability

(December 13, 2004) Canadians’ individual retirement savings hang by a thread, facing obliteration by a whim of fate — either in the form of an accident or a serious illness, according to a poll by a major disability and critical illness insurance firm.

In an Ipsos-Reid survey conducted for RBC Insurance, 52% of respondents said they would dip into their retirement funds if they were faced with a major illness or disability. They also said they would simply work longer to make up the shortfall.

“The financial burden associated with a disability or serious illness can be astronomical,” said John Young, president and CEO, RBC Life Insurance Company. “While using retirement income to get by may seem like a good solution, dipping into savings means risking the long-term value of the investment.”

This response was more common among those over the age of 55, with 58% agreeing (perhaps because these people are closer to retirement). Of respondents between 34 and 54 years of age, 51% said they could use their retirement funds, while 50% of those between 18 and 34 agreed.

“The potential for Canadians to become critically ill or disabled becomes more of a reality as they age, which is also when their retirement income will be needed for what it was intended,” added Young. “Canadians may be less likely to exhaust retirement funds if they were prepared for disability or illness and had a financial plan to address these issues.

“It’s important for advisors to have clients look at their entire financial picture and ensure that options such as disability, critical illness and long-term care insurance are considered.”

The problem with using retirement savings to fund treatment and expenses during recovery is that the disability may prevent the person from returning to work at all, let alone be able to work later in life and recoup the shortfall.

“The reality is that unless Canadians plan to save more in the future or work longer than planned, using retirement income to pay for disability or critical illness could compromise their income level and standard of living when they retire — something most people want to avoid at all costs,” says Young.

The RBC survey found responses differed more by region than by age, with 58% of respondents from British Columbia, Saskatchewan and Manitoba viewing their retirement savings as a contingency fund, while only 43% of Quebec respondents were willing to do so. Alberta and Ontario averaged at 54%, along with Atlantic respondents also at 54%.

Statistics compiled by the federal government indicate there are currently about 3.6 million Canadians with some form of disability. As the population ages, this number is likely to balloon.

The RBC Insurance/Ipsos-Reid poll was conducted between August 10 and August 12, 2004, with a randomly selected sample of 2,000 adult Canadians. The results are considered accurate to within plus or minus 2.2 percentage points, 19 times out of 20. The margin of error will be larger within regions and for other sub-groupings of the survey population.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com