Financial research initiatives for older Canadians.

The financial life stages of older Canadians research* (pdf file)identifies the top financial concerns of older Canadians and places them in the broader context of retirement concerns. It also looks at the main financial risks of Age 50+ Canadians 

Two findings have major implications for both planning and managing retirement.  

• Unexpected financial crises that disrupt savings and planned retirement spending are far more common than we anticipated, especially in the pre-retirement years.
• The financial ramifications of personal health become increasingly important as Canadians age. 

Planning

Most people operate with an informal financial plan and have an approximate idea of what they need for the future. When the future is close (e.g. the expenses of the next few months), their idea of needs 
becomes more accurate.

While most people have regular habits for saving (preretirement) or drawing income (retirement), almost half demonstrate some flexibility in managing their money. For example, they may cover regular expenses with a pension plan, but they will draw on other savings or assets when circumstances warrant. They do more than just cut spending when they have significant unexpected expenses.

Some 6 out of 10 experienced major life events that challenged their prior financial plans. When so many people have had disruptive experiences, it is clear that dealing with the unexpected needs to be a bigger part of financial planning. Flexibility needs to be part of the planning discussion.

Across the age spectrum, the three most common events that disrupt plans are:  

•       Giving financial support to an adult family member/relative that is having difficulties
•       Paying significant healthcare expenses for self or a family member
•       Losing money in the stock market and not making it back

Unexpected early retirement is the most common event to challenge plans for those under age 75. 

Among retired persons under age 75, more than one-third reported that they were forced to retire earlier than they wanted. For two-thirds of this group, it was health reasons that forced their early retirement. 

People cope with major financial events by:

• Cutting household spending
• Cashing in some of their savings
• Borrowing money. Borrowing is most common among those still working, as is stopping saving for retirement.

Two-thirds of people age 75 and over report having major medical problems.

Median out-of-pocket healthcare costs are $2000 annually for those 75 and over, but 1 out of 8 households spends over $5000 per year. Healthcare expenses are a major focus of concern for people age 75+. There are three main types of concerns for the Future:

• Money/health – Having enough to live on and direct threats like inflation and healthcare costs
• Investment – Concern with investment earnings and capital preservation
• Other – Mainly concerned with family matters, and to a small extent, concerns like fraud and getting advice.

Day-to-day cost of living is a top concern for most retired people, as well as those contemplating retirement. For those who are retired, healthcare costs present a significant risk to expenses, while investment earnings present a similar risk to income.

For those who are not retired, the major risk to expenses is how long they will live. In addition, for those who cannot afford retirement, the major risk to income is their success at staying employed until they believe they can afford to retire.

When we look at what people expect in the future, we find that money and health concerns are the most pervasive. Based on reports of experience, the concerns they have derive from their own experience and likely, those of others they know.

One-quarter of those already retired (all ages) worry that they did not prepare adequately for retirement. This compares to 4 out of 10 with plans to retire. This worry is not a reflection of the amount of money they have at their disposal. The issue is how do they learn to live with the money they have without undue stress.

Respondents were asked about the financial lessons they wanted to pass on; here is some of their advice:

• Start saving early and save regularly
• Live within your means – Avoid debt  
• Invest where it counts most – Tax Free Savings Accounts  & Registered Retirement Savings Plans
• Get advice -- make a plan
• Learn about financial matters
• Be cautious about your buying

The following was seen as useful (4-5 rating) by two thirds of respondents:

• Figure out how much income we will need in the future
• Plan to be sure we don’t outlive our money
• Learn how to prepare for future health challenges

Most people have received advice in recent years, typically on 2-3 of the issues we identified.

Most people also plan to get advice over the next two years, typically about two issues. 

Demand is particularly strong for health-related issues, as well as planning to ensure people do not outlive their money. Only 14% have difficulty getting advice. Two-thirds of this group is wary because they cannot tell if the advisor is giving them good advice. Half say that advisors do not want to deal with people unless those people have a lot of money.

A small group is unable to get advice. When asked why they find it difficult to get advice, they replied that they:

• Do not have a regular advisor
• Do not know how to get help
• Do not understand complicated explanations
• Have very little money.

Life Stage Profiles

Pre-Retired has the highest household net worth. In their planning, the most difficult thing to figure is how many years they will live after retirement and what that means for their income and savings needs.

Most get advice about planning for retirement, but one-third also plans to get advice about adapting to physical and health limitations. This group seeks information on-line more than older groups and is more influenced by on-line sources.

They are seeking a broader range of advice than older groups. Two-thirds of this group is wary because they cannot tell if the advisor is giving them good advice. Half say that advisors do not want to deal with people unless those people have a lot of money. 

Most are saving for the future. Despite best efforts at planning, two thirds experienced at least one major life event over the preceding ten years that disrupted their saving for retirement. The most common experience is forced early retirement resulting in a loss of income and benefits, more often the result of health issues than employer duress. 

In their planning, the most difficult thing to figure is how many years they will live after retirement and what that means for their income and savings needs. Across all respondents, the biggest gaps between useful advice and advice received are Preparing for health challenges and Planning to deal with surprise expenses.  

Most people also plan to get advice over the next two years, typically about two issues. Demand is particularly strong for health-related issues, as well as planning to ensure people do not outlive their money.  

*This report is based on some 1532 completed online survey interviews with Canadians aged 50 and over. This is a national sample with quotas set for each region to ensure satisfactory accuracy, as well as aiming for a roughly equal balance of male and female respondents. The survey was about 15 minutes in length and respondents were free to respond in either French or English. About one-quarter chose to respond in French.

Based on StatCan data, our sample has a slightly higher income than the general population. This is largely due to a relatively high incidence of company pension plans and registered savings plans.