Canadians may need to save more to achieve their ideal retirement plan.sorbetto/iStockPhoto / Getty Images
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Eleventh-hour discussions around contributions to registered retirement savings plans (RRSP) can also be an opportunity to get Canadians to focus on their retirement goals and, in turn, boost savings if they find themselves falling short.
The recent 2023 Ageing in Canada Survey from the National Institute on Ageing (NIA) found that among Canadians 50 and older, only about a third of participants who intend to retire could afford to do so at their desired time.
“We don’t necessarily understand what’s going on below that number,” says Dr. Bonnie-Jeanne MacDonald, the report’s co-author and director of financial security research for the NIA at Toronto Metropolitan University. “Is it that they’re more aware of and worried about the risks – such as long-term care costs?”
Or perhaps clients are struggling with the rising cost of living, fearing they cannot save enough to retire at all. Advisors are helping clients address these concerns, potentially involving a retirement planning rethink, says Anthony Maiorino, vice president, director and head of RBC Family Office Services at RBC Wealth Management in Toronto.
“Even clients with significant financial resources are concerned,” he notes.
How much will be enough?
If high-net-worth clients are worried, clients of lesser means may be even more anxious. Bank of Montreal’s recent annual retirement survey offers insight, finding that participants estimate they will require $1.7-million in savings to retire. Among millennials, the figure is $2.1-million.
Anthony Maros, a senior private banker at BMO Private Wealth in Winnipeg, says one reason for the higher figure among millennials is they face much higher costs today than most older age groups, which informs their view on retirement.
“They’re thinking that sum [$2.1-million] is the new normal because they’re grappling with higher interest rates and inflation,” he says.
Millennials also likely recognize their savings strategy may fall short of retirement goals. The BMO study notes some Statistics Canada data; the average RRSP contribution is around $6,500 a year, with an average account balance of around $113,000, down from $145,000 last year.
Mr. Maros says the drop is difficult to explain, noting it could be a result of the “market correction” or “baby boomers drawing down” from their RRSPs. Alternatively, there might be a disconnect.
Many working Canadians understand how much money they need and yet, they’re likely not saving enough. Shannon Lee Simmons, founder and certified financial planner (CFP) at The New School of Finance in Toronto says a growing number of people realize the problem they face.
“Most people I speak with – millennials, Gen X and even some boomers who are still working – feel like they will never actually retire,” she says.
Mental visualization
In turn, advisors have an increasingly critical role in helping clients look past daily challenges and deal with a daunting future, says Doug Nelson, CFP at Nelson Financial Planning Corp. in Winnipeg.
He will typically employ a mental exercise with struggling clients, getting them to imagine their future selves 10, 20 and 30 years from today. “Are [their future selves] praising and thanking themselves for making sacrifices … or are they using other choice words for the actions their present selves didn’t take?”
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Some clients face up to the need to cut spending, increase income, save more, potentially invest more aggressively and even alter retirement goals to improve the fortunes for their future selves, Mr. Nelson adds.
Advisors, in turn, can “show them a clear path forward” with a plan involving achievable, “small, incremental” increases to RRSPs and other accounts to produce a realistic retirement outcome, he adds.
Of course, retirement math has become more challenging amid growing recognition of potential high costs of care in old age, Mr. Maiorino says, pointing to recent research compiled by RBC Wealth Management.
It notes the cost of an assisted living residence for one year can exceed $100,000.
As well, modifications to age at home can involve substantial sums. For example, RBC Wealth Management research points to bathroom safety modifications costing as much as $25,000, while a personal care worker can run more than $100,000 annually for eight hours of daily care.
Yet, longevity risk is hard for many working Canadians to fathom, especially those simply worried about being able to retire, Ms. Simmons says.
“The goal, for them, is a long period of semi-retirement.”
These individuals plan to work longer, ideally in occupations they enjoy, she notes.
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