Canadians close to retirement not prepared
Most of us dream of a comfortable retirement, the phase of life where we can sit back, relax and enjoy the freedom of not having to work. However, a new study found that Canadians aged 55-64 agree that, while having a guaranteed stream of income during retirement is their main goal, the majority don’t know how to achieve this. They simply focus on saving as much as they can.
According to the fourth annual Workplace Report on Retirement Planning, older workers want the guaranteed retirement income that traditional pension plans provide. However, few plan to use financial options that provide steady paychecks. The study confirms that these workers are actively saving for retirement, but are not aware of the income distribution opportunities available. In short, near-retirees simply do not know how to take advantage of their retirement nest egg once they stop working.
Steady Income Important
The survey indicates that some 83 per cent of near-retirees believe it is “very important” to generate an income that provides for a comfortable retirement. But barely 20 per cent are well informed on how to do so.
Moreover, only 15 per cent of those surveyed are focused on generating retirement income, while 41 per cent are continuing to concentrate on building a nest egg, 23 per cent on preserving and protecting their savings, and 20 per cent on achieving better returns.
Current industry data shows that workers do not save enough from retirement programs provided by the workplace. This failure extends from the accumulation phase to the distribution phase of retirement planning. Even those who are conscientious savers and investors, including the Baby Boomers now aged 55 to 58, are not prepared to convert their retirement savings into a predictable retirement income that they can’t outlive.
Financial Knowledge Lacking
The survey also underscores the need for better financial education targeted at the needs of older people. Information should be available on distribution options and strategies to deliver a predictable, guaranteed income in the increasingly do-it-yourself world of retirement planning. Financial planners need to work to ensure that all clients have access to the tools and resources they need to build a secure retirement.
Although near-retirees acknowledge that they should be taking responsibility for their retirement security, few have plans to help them manage such issues as generating income, identifying expenses, and using savings.
More than one-third of those surveyed said they would like help in understanding products and concepts such as income annuities and systematic withdrawal strategies. A large percentage has yet to calculate the savings they need for a comfortable retirement or their monthly living expenses in retirement.
Survey Results Revealing
Even more disturbing is the fact that when asked to give themselves a grade on their retirement preparedness, 53 per cent awarded themselves a C or lower, casting doubt on the ability of older workers to “graduate” to a secure retirement. Other notable survey findings included:
• The majority (90 per cent) of near-retirees are either guessing how much income they will have or simply have no idea of the amount of income they will be able to generate during retirement.
• Although a large number of Canadians are nearing retirement, more than six out of ten are still focusing on accumulating assets or achieving better returns instead of planning on how to generate a continual flow of income.
• Too often near-retirees simply “do the best I can” with retirement planning, instead of focusing on specific, retirement-critical goals such as a targeted level of income.
• Nine out of ten near-retirees agree that it is crucial not to run out of money in retirement. This concern, however, may lead to hoarding their money. Just 22 per cent say they would tap into their savings for income early in retirement, while most would try to hold on to their assets for as long as possible.
The results of this survey should serve as a wake-up call to employers, retirement plan providers and to the nation as a whole. Those nearing retirement obviously need assistance in managing the payout phase of retirement, especially in light of current discussions on social security.
If you would like more information on how to turn your retirement savings into a vehicle to produce a steady flow of income, feel free to contact our office.