Mandatory retirement and you

There are only 650 days until my friend turns 65. Until recently, he was counting down the days until he’d be forced to leave his job. But when his firm changed its policy of mandatory retirement, he suddenly faced a whole new set of options.

If he retires at 65 as originally planned, does that imply he’s just lazy? If he continues to work, does it mean he’s a poor financial planner? And because he’s always been concerned about exactly how long his retirement savings will last, should he think about staying at his current job a bit longer or perhaps applying to work part-time at the local big box hardware store?

Financing retirement
Less than 50 per cent of Canadians are members of a company pension plan. Individuals who have a defined benefit plan – where their pension benefit is based on salary and/or years of service – often see retirement as deferred income and their reward for having put up with the job for decades.

Others who have a company pension plan based on a defined contribution plan – where their pension is based on the value of their savings and earned investment income – might view retirement as beingut out to pasture.

And the rest who are responsible for securing their own retirement income using government benefits, investment income, RRIFs and other sources of income may feel retirement comes far too early.

Why abolish mandatory retirement?
There are a number of reasons for eliminating mandatory retirement at 65.

• Canada’s projected labour shortage.

• Government may wish to push the start age for CPP from 65 up to 67 or 69 in the future.

• Those who have not saved enough to retire can continue working.

• Those who are healthy and want to work after age 65 can do so.

• To avoid any human rights violation.

When can you retire?
When you can retire depends on calculating both your projected expenses and the guaranteed income you expect (from pension, CPP, OAS, annuity, etc.) along with any income that is not guaranteed. Some people feel more comfortable in retirement if they can guarantee a certain amount of their retirement income – almost like creating their own monthly pension.

Your financial adviser should be willing to prepare multiple retirement projections to help you make your decision. A retirement projection uses many assumptions to help you understand when you can afford to retire. Even a slight change in one assumption will affect your retirement date and/or your retirement income.

When do you want to retire?
Money alone is not enough to guarantee you will enjoy your retirement although it helps. The real question is what do you see yourself doing for the next 20 years or so? Without work, retirees look to structure their day with activities such as fitness training, volunteering, travelling or spending time with family and friends. Those who seem to be the happiest have created structure and activities to their days aimed at keeping the body and mind active.

Something to fall back on
Traditional retirement planning assumes individuals will retire at age 65. Many unions and employment contracts continue to assume retirement occurs at 65. From the employee surveys I have seen, most of those close to retirement still intend to retire as planned. Of course, if you already have a target date in mind, why would you change that date just because governments no longer set a mandatory age?

However, the elimination of mandatory retirement will give individuals who are already retired – or about to retire – a safety net. If their expenses increase or their investments don’t grow as expected, they can always return to work, even part-time, as long as they have their health. This alone might give politicians sufficient reason to consider abolishing the practice of mandatory retirement.