Tag Archives: retirement

Most Seniors Need Better Pensions

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Even seniors who have done careful planning may be finding that their retirement plans are under severe pressure. Seniors are living longer yet savings may have been eroded by the severe depression. It was not surprising therefore to see that governments are reacting to these seniors’ concerns.

In December there was talk that Ontario was ready to consider a mega-pension plan.

Ontario is prepared to discuss every option to increase retirement income and broaden pension coverage, says Finance Minister Dwight Duncan – including an expansion of the Canada Pension Plan. He was meeting with fellow finance ministers to review research by Alberta economist Jack Mintz that was commissioned by Ottawa, as well as research done for Ontario by Bob Baldwin, a former researcher for the Canadian Labour Congress. Discussion of their reports will set the stage for further study and public consultations leading up to Council of the Federation meetings with premiers in the summer of 2010.

Fellow finance ministers from British Columbia and Alberta have been openly pressing for a national pension arrangement either linked to, or running parallel to, the Canada Pension Plan (CPP). However proposals for some form of mega-pension plan have raised the hackles of bankers and insurers.

Now Terence Corcoran is suggesting that the Canadian Association of Retired People (CARP) is over-reacting.

The implication is that the vast majority of Canadians are heading into retirement nightmares and need to be bailed out by another government income redistribution system — an implication that is not borne out by a half dozen studies recently commissioned by Ottawa. In a recent report on the studies assembled by Jack Mintz of the School of Public Policy at the University of Calgary on behalf of Finance Canada, the Canadian pension system looked far from being a nightmare. The studies found Canada’s pension system to rank well above the OECD average in terms of providing income security and replacement for the vast majority of Canadians. There are certainly gaps, although exactly where those gaps are remains an unresolved issue.

Susan Eng, Vice-President, Advocacy, at CARP disagreed with the tenor of Terence Corcoran’s article:

Mr. Corcoran argues that there is no need to fix Canada’s pension system. Leaving aside his opinion about the messengers who call for change – including one of Canada’s premier business schools with whom CARP is proud to keep company – the essence of his argument is that the experts engaged by the federal government think that Canada’s pension system does well enough for most.

But what would he propose for the rest? Even his Mintz report identified a significant number of people who are not saving enough. Anyone retiring without savings or a workplace pension is expected to live on $16,000 to $19,000 consisting of OAS and CPP/QPP topped up by GIS. That is fact, not rhetoric.

For those seniors, that is a very bleak and possibly a very long retirement future.

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Is Your Retirement Plan In The Red

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.. and if not now, will your retirement plan be going into the red.  According to Jonathan Chevreau, Most Boomers’ retirement plans ‘going nowhere’. 

He is featuring the concepts that financial planner Jim Otar lays out in his forthcoming book, Unveiling the Retirement Myth.   In his opinion, most Baby Boomers have not saved enough to retire comfortably and should plan to remain in the workforce longer.

Otar describes three “zones” of retirement preparedness.

  • Green: good to go
  • Orange: (or as Otar calls it the grey zone) where extreme caution is appropriate
  • Red: where retirement plans are completely inadequate

His views might be described as depressing but reflects the dual reality that investments have not been performing well and that people are living longer.  His advice is that you should plan for the worst because unfortunately that may be what happens.

He has particular concern for those who are in the grey zone who may or  may not make it, depending on how lucky they are and the timing of their retirement.  For him, when you are within five years of retirement you are in the dreaded Retirement Risk Zone.  This is a dangerous period when investment returns may determine success or failure of one’s plans. Retiring into a vicious bear market may torpedo a retirement, while retiring into a bull market is more fortuitous.

Otar’s website has much more to offer on retirement planning.  His 500-page book will be available in the fall, but an unprintable “green” version is available for $3.99.  It probably should be required reading, particularly for those who are in that Retirement Risk Zone.

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Retirement Planning Faces A Perfect Storm – HSBC

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An HSBC Insurance study reveals that as far as pensions are concerned, a ‘Perfect Storm’ looms for an unprepared world.

A number of factors are in play:

  • Demographic, individual and financial elements are poised to derail people’s retirement plans unless they prepare properly now.
  • People’s short-term survival strategies in the midst of this recession are creating a serious long-term pensions ‘downturn deficit’.
  • This all is occurring even though people are aware that they are likely to live longer.
  • It is made worse by poor levels of financial understanding, education and access to advice
  • People are more concerned with protecting their possessions in the short-term than ensuring they can look forward to a financially secure retirement

Stephen Green, Group Chairman of HSBC, said: “The ‘preparedness gap’ reveals that families need greater support and guidance to effectively handle their finances, not simply in schools and colleges but through ‘trusted advisers’ providing professional financial guidance. The cost of procrastination is likely to be high.”

More specific advice can be found on the HSBC web page on Planning For Retirement.

As Jonathan Chevreau points out Canada is affected by the aging trend that is occurring worldwide. HSBC projects that between 2010 and 2015, the number of dependent adults in Canada will pass the number of dependent children for the first time, a crossover point which will arrive much earlier compared with emerging economies.

To better cope, 48% of Canadians and 55% of Americans would like to see further tax relief on savings. 16% of Canadians think the retirement age should be raised and more support be provided to those who choose to work longer.

28% of Canadians viewed debt as a key obstacle to saving more. Many are trying to create a “buffer” of savings by cutting back on both large and small purchases while also paying down debt.

Nevertheless it is clear that many people will struggle to make ends meet when they come to retire, unless they urgently review their priorities and planning and have the means to make adjustments..

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Never Retire

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Contrary to the previous post on choosing your retirement age, there are some who feel strongly that you should never retire.

Some People Can Be Happy Never Retiring and Nick Midey, who is a lawyer, is just such a person.

“I’ve practiced law for 60 years,” says 82-year-old Nick Midey. “My doctor tells me if an active guy like me stops working they often die within six months, so I never plan to retire.”  Midey’s secret to such personal satisfaction lies in his passion for his job. “I love my work,” he says. “I enjoy meeting and helping people – I never want to give this up.”

Midey noted that four years ago he had heart surgery and was confined to his home for a few months to recover. “I nearly went crazy. I read everything in sight and easily tired of TV. I couldn’t wait to go back to work.” He said it was during this recovery period that he decided he’d never retire.

An even more illustrious example is Sir Alex Ferguson, the manager of Manchester United.

I never think about retiring any more – if my health’s fine I’ll carry on. Ferguson stopped short of indicating he would have to be carried out of Carrington in a box, though he did concede that he might go on managing into his seventies after all.

‘I don’t know what I’m going to do or when I’m going to go, it’s very difficult to say,’ the Manchester United manager, who turns 67 next month, said. ‘My only plan at the moment is not to have a plan. I don’t ever think about retiring any more, I’m not going to put myself into that situation. I’ve stopped thinking, “Should I go this season or next?” You’re not forced to retire now, after all. If your health is all right and your team is doing well there’s no reason not to carry on.

Such individuals who do not wish to retire are presumably in the minority.  However a Vancouver Sun item today suggests that Pension woes could see older workers ‘retire on the job’.

Company pensions funds have fallen so deeply into deficit that the eroded benefits some plans would now provide could prompt older workers to shelve their retirement plans, in some cases also eroding their motivation to the point where they in effect “retire on the job.”  That warning came Thursday in one of two reports on the deterioration in the health of employer pension funds.

Members of defined benefit plans, which promise a set level of benefits at retirement, will be at risk only if the company does not survive long enough to fully fund the plan, according to a report by consulting firm Watson Wyatt Worldwide.

The pensions of workers in defined contribution plans do not have that security.

A pension report by consulting firm Mercer indicated that pension plans may be even deeper in the red, with their assets having fallen to less than 60 per cent of what is needed to fully cover benefits.

“The financial health of Canadian pension plans plummeted in 2008, as stock markets and interest rates declined sharply,” the Mercer report said.  Its index of the ratio of assets to liabilities of a “model” pension plan fell to 59 per cent from 82 per cent last year, a 23-point drop.

Choosing not to retire is a very different situation from having no choice but to continue to work.  It certainly seems that many will be in that unfortunate situation.

Footnote: If you are interested in books on Retirement, then why not visit the Retirement section of the Money Bookstore.

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What Age Will You Retire At?

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Choosing when to retire is one of the most important decisions any senior must take.  Many weighty issues are involved and much has been written on the subject.  Here are a few of the more important articles on the age of retirement that you will find on the Web:

The last one is thrown in somewhat facetiously.  A more useful reference is that provided by today’s CNN article on Kicking Back In Retirement.  This is the final excerpt in the five-part series by the CNN chief business correspondent Ali Velshi. It is taken from his new book,”Gimme My Money Back: Your Guide to Beating the Financial Crisis”

For too many people, retirement recedes like a horizon. As you draw closer, it moves farther away. You reach the age that should have been the starting line, but the comfortable years they talked about on TV are nowhere to be found. What happened?  There’s no mystery. The retirement we’ll have is a function of how well we’ve planned for it. If you leave it to chance, you might as well forget about it. So it’s time to start thinking about it now.

His key pointers are:

  1. Save as much as you can as early as you can.
  2. Set realistic goals.
  3. Tax advantaged accounts represent an excellent way to save for retirement.

As with the previous excerpts, it is a excellent advice.  For the other seven of his key pointers, you must refer to his book.

Footnote: If you are interested in books on Retirement, then why not visit the Retirement section of the Money Bookstore.

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