The Gender Divide in Retirement

According to a British Study called the  2016 Readiness Report, women are still significantly behind men when it comes to being prepared for their retirement. The UK’s average readiness score is currently sitting at 51. However, while men have a readiness score of 54, women have an average readiness score of just 49. On first glance, it might not seem like the gap is as wide as you might expect. Here some information from the report: (for the full report go here Pdf file)

How ready are you for retirement?

Pensions have graced the cover of almost every newspaper in the UK in the past 12 months, and there has certainly been a significant amount of column inches dedicated to the topic. But, the problem remains. Lack of preparation for retirement in women certainly has roots in previous employment patterns and social norms, and women are still more likely to have career breaks than men to care for family. However, there is also a lack of pension awareness across both men and women and a need for change.

Traditionally, women have relied on a spouse to provide for their retirement, but in today’s age of independence and equality, there is a need for women to take responsibility for building up their own pension pot. 

People reaching State Pension Age after 5 April 2016, will build up a State Pension based on their own national insurance contribution record, and apart from some complex transitional arrangements, it won’t be possible to inherit a spouse’s pension. It is increasingly important that both government and industry make a concerted effort to further encourage women to plan for life after work. Currently, women on average tend to live 3.7 years longer than men and they will need to make sure they have an adequate retirement income to live on.

The Readiness report research shows that women typically aim to retire aged 64, which is problematic given that by 2020, the state pension age for women will have risen to 66, if they don’t have private pension savings to fill the gap.

My life today is

If we take responsibility for our life and say without doubt or equivocation, that "My life today is entirely the result of my prior decisions, focus, and understandings." then and only then can you move on to meet your goals, your dreams, and to make peace with the past. If you can do this, then I believe that you will be able to see, without doubt or equivocation, that it's only a matter of time before your every cup is overflowing.

How much do you need for retirement? Easy answer It depends, longer answer below

As you start planning for retirement, it’s important to know how much you will need to retire comfortably. Although this is a basic question when planning for retirement, it can be very difficult to accurately calculate how much you will need in 10, 20 or even 40 years.

As a starting point, here are some factors that can affect how much you will need for your retirement. Keep in mind this list is just a start.

Your retirement goals

Your retirement goals could have a big impact on your spending habits and will form the basis of how much you need to save. How do you picture your retirement? How will that change over time?

·       Do you plan on travelling more frequently?

·       Do you want to retire earlier or later?

·       Do you want to work in retirement?

·       Do you want to start saving for a grandchild’s education?

·       Do you plan to move out of your home? Do you plan to move to a different community?

·       Do you plan to carry debt into your retirement?

Current spending versus expected spending in retirement

Your current financial obligations are likely different than they will be when you retire. So how much of your pre-retirement income will you need in retirement to maintain your desired standard of living? 70%? 60%? 50%?

There is no golden rule or set amount. The amount can vary greatly from person to person, since everyone will have different retirement goals, different levels of income and different attitudes about money. Some people might need less, while others might need more.

To get a rough estimate as to how much you will need, think about your retirement goals, how you spend your money now and how you think you will spend it after you retire. For example, whether you still have substantial debts such as a mortgage or an outstanding loan, or downsizing your home, can have a significant impact on your spending in retirement.

If you plan to move to another province or out of Canada, look into how that might impact your medical insurance, social benefits and taxes.

It is also important to consider the effects of inflation, which is the rising cost of consumer goods and services. You should think about including a rough estimate of how much things will cost when you retire using a historical average annual rate of inflation.

 If your savings are not growing by at least the rate of inflation (2.00% between 2000 and 2014), your savings can actually decrease in value over time. To help you compare your current spending with your expected spending in retirement, try FCAC’s Budget Comparison Worksheet. Once you have an idea of what your future expenses will be like, put those values in the Financial Goal Calculator, to help you create a plan to save for your retirement.

How long do you expect to be retired?

Today’s retirement landscape looks quite different than it did 30 or 40 years ago. The number of years you can expect to live in retirement has increased: on average, a male aged 65 in 2013 can expect to live to 84 and a female aged 65 in 2013 can expect to live to 87. Therefore, it is important to plan to save enough to support your desired lifestyle throughout your retirement.

Deciding when to retire is a major lifestyle and financial question, and the answer can have a big impact on how much you’ll need to save for retirement. For example, if you expect to live until you’re 90 and want to retire by 65, your retirement savings will have to last at least 25 years, but they will have to last 30 years if you retire at 60. By working five years longer, you earn five years of extra income and delay the need to access your retirement assets by five years as well. The combined effect can be a significant help in achieving your retirement goals. 

Your retirement can depend on several factors, including:

·       your retirement goals (desired lifestyle)

·       your partner’s retirement plans

·       your health or a significant other’s health

·       your current financial obligations and living expenses

·       how much you will get from private and public pensions

·       your current job as well as the availability and suitability of other job opportunities

Unexpected events

When planning for your retirement, you may wish to consider the possibility of unexpected events such as:

·       earlier than expected retirement for personal, professional, or health reasons

·       unexpected major expenses such as home repairs, car maintenance, travel etc.

·       health emergencies for yourself and/or a significant other and the need for additional care this may cause.

It is important to consider the impact of unexpected events on your retirement since they can dramatically affect your finances. With this in mind, think about starting an emergency fund for your retirement that will be larger than a typical emergency fund (three to six months of income).

While unexpected events will always be a surprise, planning what you will do in case they happen can help lessen their impact. Consider setting up a specific banking or savings account as an emergency fund and have a percentage of your pay automatically deposited into the account.

You might also wish to consider whether you have enough disability or life insurance, and whether you will need to purchase additional insurance coverage to reduce the risk and financial impact of for unexpected events.

Long-term care

Many Canadians find it difficult to think about the idea that they may need long-term care in their retirement years. However, planning for the possibility of long-term care is an important part of retirement planning. Depending on your needs, long-term care can be very expensive, so it is important to get an idea of how much it may cost and to plan accordingly.

Long-term care facilities are governed by provincial and territorial legislation. Therefore, costs may vary depending on where you live or where you decide to live. For additional information about the potential costs of long-term care, please contact your provincial or territorial government.

If available, consider critical illness or long-term care insurance coverage which can help cover some of the risk.

After carefully reviewing your potential needs, set a goal and use FCAC’s Financial Goal Calculator to help create a plan to get there.

The information above was from the government of Canada's web site on retirement planning found here

Are you retiring in Canada: Pillar 4: Real Estate and TFSA

There may be one more pillar for the Canadian who is thinking of retirement argues a new report by the C.D. Howe Institute (pdf file).This pillar is available to only 40%  of Canadians, well the other pillars are available to more of us.

These fourth-pillar assets – which include real estate, publicly traded securities, privately owned business investments, insurance products and tax-free savings account accumulations – significantly improve the outlook for Canadians’ retirement readiness, according to the report.

Jeremy Kronick and Alexandre Laurin, the authors of the report, focus on the group generally thought to be most at risk of inadequate retirement savings: employed 35-to-64-year-old Canadians. After factoring wealth already accumulated from all fourth-pillar assets, the authors found that 40 per cent of this group has potentially already accumulated sufficient wealth to sustain themselves in retirement.

Canadian households can count on various sources of wealth in retirement, notes the report. Government payments through the old-age security benefits and the guaranteed income supplement program provide a basic income for all Canadian retirees. These payments are complemented by the Canada/Quebec Pension Plan.

Combined, these government programs provide a guaranteed annual income stream and form pillars one and two of the Canadian retirement income system, according to the report. For the third pillar, the report points to workplace pension arrangements such as defined contribution and defined benefit pension plans, tax-deferred retirement savings plans and individual registered plans.

“Much of the policy debate in Canada around the adequacy of retirement saving has ignored the role of fourth-pillar assets or has tended to acknowledge their potential role but ultimately dismisses their importance,” states the report. “Despite this lack of attention by policymakers, private wealth accumulated in assets other than pension and retirement saving plans can provide a significant source of retirement capital.”