Floating new ideas about retirement

Originally published in the Toronto Star on February 3rd, 2010. To view the Toronto Star’s website, please click here.

Most Canadians can live 30 years after they finish working so securing a long-term financial plan is key to a healthy and happy lifestyle later in life

The good news is that Canadians’ life spans are getting longer.

The bad news is that their retirement savings may not be keeping up, experts say.

On average, a Canadian man born in the 1931 could expect to live to age 60. That rose to 68 for those born in 1961 and again to age 78 in 2005, according to Statistics Canada. A woman born at the start of the Great Depression expected to live to about 62. By 1961, that climbed to age 74, and it went up again to 82 years in 2005.

That’s life expectancy at birth. Research shows that if you reach age 65 and you’re married, there’s a good chance one of you will reach your 90th birthday. Half of the time, one spouse will reach age 92, and a full quarter of the time, one will reach 97.

Consider this: if you’re working from ages 25 to 65, you’ve got 40 years to work and save up enough for possibly 30 years of retirement.

“I don’t think people yet realize what longevity can mean for a retirement plan,” said Lee Ann Davies, head of retirement strategies for the Royal Bank of Canada.

“It’s hard to get people in their 30s and 40s thinking about living into their 80s and 90s and what that might mean for them because retirement has so many different phases and stages in it. Your needs when you’re 65 are much different than when you’re 85.” RBC’s 2010 annual retirement planning poll found that while 90 per cent of respondents feel they will have enough income to cover the necessities in retirement, only 1-in-4 feel they will have enough money to fulfill their retirement dreams.

The poll also found that three-quarters of retired Canadians didn’t know how much they spent in their first year of retirement. Of those who did know, half said they spent more than expected.

Along with inflation risk and market risk, financial planning experts are talking about longevity risk. And seniors are feeling it first-hand. “The big worry now is outliving your money,” said Susan Eng, head of CARP, the Canadian Association of Retired Persons.

“As people look at their circumstances, what we’re seeing is that people need much more flexibility. They need to have more money to begin with.

“They get particularly upset when market circumstances erode their nest egg and if they’re already retired, what would their source of income be? You can’t just say, `I’ll go get a job.'”

The lobby group is arguing for pension reform and against a mandatory age for retirement.

“We stress the need to save more for retirement, and we try to remind people, no one else is helping you do it,” Eng said.