Retirement planning concerns of boomers in 2017

As Boomers, we are faced with a new reality, our retirement could last for 30 years. Yet, a 2017 study by the Royal Bank of Canada (RBC) found that three of our top retirement concerns are. longevity-related

a.    Maintaining our standard of living (39 percent)

b.    Having enough savings (37 percent)

c.     Covering health care costs (34 percent) –

only one third (33 per cent) indicate they’ll adjust their retirement lifestyle plans to prepare for three decades after they retire.

“Thirty years in retirement should be a huge gift of time when you can do what you want when you want – but you need to connect the dots between living longer in retirement and preparing for those additional years,” advised Yasmin Musani, Director – Retirement Client Strategies, RBC. “If you’re in your 50s and haven’t considered all of your retirement options – and yes, making adjustments – it’s not too late to plan how to get the most out of all of your retirement years.”

The  RBC Financial Independence in Retirement Poll also found that almost half (46 per cent) of Canadians aged 55+ felt they were financial “somewhat short/nowhere close” to where they anticipated they would be at this point, in terms of their retirement savings.

Their #1 question: “Will I have enough money in retirement?” When you ask this question of yourself, the answer should be: What do you want to do when you retire and once you decide this, then take a look at how much money that will take.   Think about your goals in retirement and talk to your significant others about retirement lifestyle before you focus on the finances, and remember there’s no ‘one size fits all’.

Start your retirement conversation by asking themselves a few questions:

·       Where will you want to live?

·       Do you have any travel plans in mind?

·       Will you be providing any assistance to younger or aging family members?

·       Have you discussed your plans with people close to you and with a financial advisor?

Like me, you may find that your priorities, change or shift as you approach and then enter retirement. That’s why it’s so important to have a conversation about your retirement thoughts with the key people in your life and then to sit down with a financial planner, to ensure you’re taking all your options into consideration. Retirement plans need to be fluid, to adjust as you approach retirement – and flexible enough to support the lifestyle you lead once you are retired.

According to the RBC survey, the top 6 retirement questions on the minds of Canadians 55 plus are:

46%: Will I have enough money in retirement

26%: How do I make the most of the money I have saved

20%: How will I deal with inflation in retirement

19%: What lifestyle changes should I expect in retirement

15%: How will I manage debt in retirement/How will I earn income while I’m retired

13%: Should I downsize/sell my home

According to the same survey here are the top 6 activities retired Canadians are doing in retirement

62%: Taking time for myself

45%: Spending more time with my spouse/partner

43%: Getting more rest

42%: Travelling

38%: Improving my health

32%: Spending more time with my family (other than my spouse /partner)

These are some of the findings of the 27th Annual RBC RRSP Poll conducted by Ipsos from November 25 to 30, 2016 on behalf of RBC Financial Planning, through a national survey of 2,033 Canadians ages 18+ who completed their surveys online

Why Do People Avoid Planning for Retirement?

One of the reasons may be that we have difficulty making connecting with our future selves. We see our future selves as strangers and don’t feel compelled to take care of that stranger. So, if we can change our perception of our future self, then we can perhaps change our hidden behaviors that prevent planning for retirement. In order to get people to plan for retirement, it’s important to first understand why they don’t. Behavioral scientists working have helped identify five universal behaviors that keep people from planning for their retirement

A study found that 56% of retirement plan participants said they struggle with the Longevity Disconnect behavior, find it hard to imagine themselves in years to come, and have difficulty understanding their future financial needs.  In the same study by Prudential  24% struggled with Optimism Bias, while 13% with Procrastination and only 7% with Overreaction. Less than 1% struggled with Impulse Control

Research tells us that most people use two modes of decision-making: instinctive and reflective. Most behavior is governed by the instinctive system, like driving or hitting a baseball. Some behavior is slower and deliberate and engages the reflective system, like taking the SAT or planning or retirement.

Procrastination: I’ll Do It Later

The average person procrastinates two hours per day. Why? First, we believe our future selves will be smarter than our current selves. Second, over the course of a day, we make hundreds, even thousands, of decisions. Our brains get tired; so, tough decisions lose out to easier ones. Even in our busy lives, it’s easier to daydream about the future than spend the time we need to plan for it.

Optimism Bias: It Won’t Happen to Me

We are naturally optimistic. Why worry? We think things will turn out better for “us” than “them.” But this optimism can cloud our judgment and make us terrible at assessing risk. The result is we don’t take preparing for our future security as seriously as we should.

Overreaction: I Just Can’t Resist

We know there are various ways our emotions impact our financial decisions. Many of our important decisions are guided by what others are doing, even when we know it may not be right for us. For example, people may flock to pull out of stock when the market is going down, only to miss the opportunity to catch the increase when the market moves in the other direction.

Impulse Control: I Want It Now

We are conditioned to want things now, even though resisting short-term impulses can pay off much more in the long term. The idea of waiting or resisting a temptation is painful. So the concept of putting aside money for far-off financial security is almost inconceivable.

Why Participant Behavior Matters

By identifying the invisible forces behind our predictably irrational behavior toward money, we can all help to reframe the retirement conversation.

When we understand the behavioral quirks that influence participants’ saving and investing behavior, we can evaluate the plan from an entirely new perspective. We need to understand that our future self is not a stranger, and once we understand and identify with our future self, the faster we may decide to plan for retirement.

Canada's Pension reform still needs some work

A report on the latest pension reform by the Federal Government of Canada is interesting reading. The authors have made some interesting points. Two I agree with are:

1. The retirement income system requires regular review and adjustment to ensure it responds to ever-changing demographic, labor market and financial environments. The recently adopted changes to the CPP mark the third major reform in its 50-year history, and there have been smaller changes along the way. There is much to commend in the management of the CPP and the RIS more generally. But it could be substantially improved in several areas. In particular, the triennial review of CPP finances should be more open and transparent, and there should be a regular assessment of the income prospects of the current and future elderly. This will require addressing gaps in the data and modeling capacity of governments.
2. The individual reforms to the retirement income system introduced by the current government are a step forward. But, taken together, they amount to less than might have been hoped for. They are not coordinated, they ignore other components of the retirement income system and personal income taxes, and they fail to respond to evolving socio-economic conditions. What is needed is a holistic, forward-looking approach to pension reform. This is an area where governments will have to show leadership in assessing the retirement income prospects of Canadians and framing options for reform. Such leadership was much more evident in previous rounds of the pension debate.

No stress after retirement, think again

Many of us believe that we’ll finally be able to relax once we retire. It’s understandable to hang a lot of hopes on this phase of life. It’s easy to imagine how sweet, and stress-free, life could be if we didn’t have to go to work. Well, the problem with this image is that another important factor goes alongside it – in order to really be stress-free, we’d need to have plenty of money.

A new paper published in the Journal of Gerontology suggests that the period around retirement may widen socioeconomic inequalities in stress and health.

Poorer people, or people in low-status occupations, often have poorer health and higher biological stress response levels. The socio-economic-health gradient peaks around retirement in the United States and a number of European countries. This widening in health inequalities could be a reflection of the accumulation of socioeconomic disadvantages over a lifetime, with early life inequalities in health becoming magnified over the life cycle.

Retirement, however, could potentially moderate this pattern of widening health inequalities if changes in biological stress levels during retirement differ between socioeconomic groups. Higher stress levels associated with lower status work could be mitigated by retirement.

Retirement was associated with lower stress levels- those who had recently retired had lower stress levels when compared to those who remained in work. But on further investigation, this apparent benefit of retirement on lowering biological stress response levels was only confined to those in high-status jobs. Workers in the lowest status jobs had higher stress levels compared to those in the top jobs. And retirement increased, rather than decreased these differences in biological stress levels.

This study has shown that British civil servants employed in the lowest status jobs had the highest levels of stress compared to those in the highest status jobs. Socio-economic differences increase, rather than decrease, around the retirement period. These biological differences associated with transitions into retirement for different occupational groups may partly explain the pattern of widening social inequalities in health in early old age.

It may seem counter-intuitive that stopping low-status work which may be stressful does not reduce biological levels of stress, said the study's lead author, Tarani Chandola. "This may be because workers who retire from low-status jobs often face financial and other pressures in retirement. This study suggests that people's stress levels are not just determined by immediate circumstances, but by long run factors over the course of their lives.