We have the makings of a retirement doom loop in the economic disruption caused by inflation and high interest rates.
Inflation stretched household budgets, and then high interest rates piled on. People know they should save for retirement but can’t. They feel hopeless and either disengage or make sketchy plans such as relying on their home equity or working longer.
An inside view of this is found in the results of the latest annual retirement poll commissioned by the Healthcare of Ontario Pension Plan, or HOOPP, and conducted by Abacus Data. “Amidst a rising cost of living and persistent interest rates, Canadians’ retirement outlook is particularly bleak,” a news release about the poll says.
Asked if they had put money aside last year for retirement, 49 per cent of non-retired respondents said no. The comparable number in the 2023 survey was 51 per cent, but there’s minimal optimism on view in the poll results. Almost six in 10 non-retired participants said they felt unprepared for retirement. Also, whatever stress men are experiencing, women are feeling it more.
HOOPP’s poll is about advocating for more pension coverage in the workplace, a topic I will cover in an upcoming column. There’s some good news here. For now, we need to address the anxiety being felt today about retirement. Here are some questions to work through in assessing your retirement prospects, with thoughts on how to move things forward even in challenging times.
How much will I save for retirement in 2024?
Zero is an OK answer. It’s fine because you can catch up later. But putting even a few hundred dollars into a tax-free savings account or registered retirement savings plan is a concrete step forward. Don’t worry about finding the perfect investment. Just find some money.
What have I saved so far?
Skipping a year or two of retirement saving is a lot easier when you have a base amount saved already. If you participate in a company pension plan, you’re contributing to your retirement savings with every paycheque.
When can I save in the future?
If you can’t save now, when will you be able to? When you get a promotion, raise or bonus? When you finish the payments on your vehicle? When your kids are out of daycare? Set the date and mentally prepare for diverting money into retirement savings.
What does my employer offer to help me?
Employers are providing financial wellness programs, and there’s a new trend of offering savings plans beyond pensions for retirement. If you have access to an employee assistance plan, or EAP, see if it offers any help to address your anxiety.
Can I work past age 65?
In the HOOPP poll, 26 per cent of non-retired participants said they expected earnings from continued work after they retired from their current job. Working longer is an excellent way to improve your retirement situation, but there are some questions to consider. One, will your health permit you to keep doing the kind of work you do? Two, how feasible is it to work longer at your current job or find employment elsewhere? If you want to continue working at your current job past 65, don’t let yourself be seen as getting stale.
Can I use my home equity?
Just over four in 10 people in the HOOPP poll said they plan to rely on the sale of their home to set themselves up for retirement, up four percentage points from the previous year. Most retirees will be able to sell their family home for much more than they paid. But what next? If you rent, expect to pay $3,000 a month for something decent in a big city. If you downsize, you may be surprised at how little money is left after you buy your next home and fix it up. Moving to a cheaper city works, but how far away from family and friends would you be?
Can I earn more?
Are you going to scrimp your way to finding retirement savings money after three years of high inflation? Likely not, so look instead at increasing your income via promotion, bonus, move to a new job or building your credentials.
Do I need professional help?
Frankly, a lot of retirement anxiety is generalized fear of the unknown future that begins when we leave the workforce after 40-odd years. You might be financially OK for retirement based on what you’re doing now, or close enough that just a few tweaks are needed. A consultation with an accredited financial planner will cost you $1,500 and up, but the value is potentially massive if you stress less about retirement.
Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.
