The following is from a Morneau Shepell, newsletter. Morneau Shepell
is the only human resources consulting and technology company that takes an integrated approach to employee well-being to meet health, benefits and
retirement needs
The Canadian Institute of
Actuaries (CIA) and the Ontario Securities Commission (OSC) recently released
studies regarding perceptions and behaviours of Canadians when it comes to the
financial aspects of planning for retirement. The key findings of the CIA study
indicate that many Canadians misunderstand certain aspects of retirement
planning, potentially leading to a damaging impact on their financial
well-being for the later parts of their lives.
These studies present the
results of a survey by Canadians, aged 50 to 80, who are either close to
retirement or already retired, examining their anticipated concerns and risk
preferences with respect to retirement.
Key findings presented in the
report include:
•
Pre-retirees
expect to retire at a later age than retirees have experienced. The expected
median retirement age is 65 for pre-retirees versus the actual median
retirement age of 60 experienced by current retirees who responded to the
survey.
•
Sixty-one percent
of survey respondents have or expect to have relatively low liquid retirement
assets. Ten percent have or expect to have less than $25,000 of liquid
retirement assets and do not own their home or other properties.
•
Respondents
profoundly undervalue life annuities. Eighty-four percent of respondents
estimated the price of an annuity at less than half of the actual market price.
Furthermore, respondents showed low interest in purchasing annuities at any
price due primarily to their views of the associated credit risk and the loss
of flexibility, control and financial security.
•
In general,
respondents lack the understanding of the long-term cumulative impact of
inflation on the cost of living. However, there is a dramatic change in their
preferences when the cumulative inflation impact is depicted, and they become
willing to “pay” more in exchange for inflation protection.
•
Bequest (i.e.,
providing an inheritance) is generally viewed as fairly unimportant.
•
The overall
attitude towards seeking professional financial advice is positive. Behaviour,
however, is found to be strongly related to liquid retirement assets:
respondents with low liquid assets show little interest in seeking advice,
mainly due to affordability. In general, respondents show high concerns over
potential issues such as accessing quality service, conflicts of interest, and
fraud.
The findings of the CIA study
suggest that Canadians would benefit from plan sponsors implementing
interventions or behavioural “nudges” to encourage plan members to engage in
retirement education and planning. The study also demonstrates that there are a
number of prevalent misperceptions that can lead to damaging results for
imminent retirees.
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