Study reveals that many Canadians expect to retire early, but aren't saving for their life after work
Advisors know that retirement is not something that just happens to people. It takes work, planning, saving, and sacrifice, especially in a period of reduced pension access. A recent study from IG Wealth Management, however, would appear to imply that Canadians on the whole are more passive in their retirement expectations. Almost half of the survey respondents said they expect to retire before age 65, yet a similar number said they are prioritizing their current lifestyle spending in place of saving for retirement. More than half of the respondents have put off saving due to financial pressures and 80 per cent say that the rising cost of living has made saving difficult. Canadians are struggling to save, but many have not drawn the line between that lack of savings and their retirement expectations.
Christine Van Cauwenberghe sees an element of “blissful ignorance” in the survey results. The Head of Financial Planning at IG Wealth Management explained why she believes so many Canadians are expecting a retirement date and retirement lifestyle that they aren’t currently saving for. She outlined some of the efforts currently underway to educate and reset expectations and drove home the crucial role advisors can play in building effective plans.
“There are quite a few people who certainly do expect to retire before 65 but they haven't yet grappled with the reality of needing to save for that,” Van Cauwenberghe says. “There also just seems to be a complete lack of awareness of how much they might need to save, or what would it take to have the type of lifestyle that they need.”
Van Cauwenberghe notes that many of the unrealistic expectations in the survey are arrived at honestly. Few generations in the past have been good at saving for retirement. Recent retiree generations, however, had greater access to employer-sponsored pension plans which helped close any gaps in personal savings. Access to those plans, especially inflation-indexed defined benefit plans, is increasingly limited. Canadians are also living longer meaning they have to rely on personal savings more than past generations to live longer than past generations.
There is also the issue of expectations. The survey noted that despite a lack of savings, almost 40 per cent of respondents wanted to prioritize travelling in retirement. Van Cauwenberghe notes that many of those past generations had lower expectations for their retirement. Now, whether due to the greater ubiquity of travel, the rise of influencer culture, or myriad other reasons there is a growing expectation that Canadians will be able to ‘do it all’ in their retirement years.
The rising cost of living was a major theme in the survey results, and an issue that many respondents cited as limiting their ability to save for retirement. Housing costs are a significant part of that, with many younger Canadians forced to buy homes that stretch their monthly budgets due to the lack of affordable alternatives. They might be told, however, that the value of their home can be a crucial part of their retirement. Van Cauwenberghe cautions against that kind of thinking, however, noting that many of the current generation of retirees are electing to age in place.
As with many surveys about the state of Canadian retirement, the latest report from IG found that Canadians who work with an advisor have an easier time balancing their lifestyle goals and expenses while saving for retirement. Van Cauwenberghe explains that connection quite simply, stating that typically advisors are able to give a much better answer to the question of ‘am I going to be okay’ that so many Canadians ask in the leadup to their retirement.
That is not to say an advisor can work miracles. If a new client comes into the practice aged 55 without adequate savings and the goal of retiring in five years, there is little that an advisor can do to make that dream a reality. Van Cauwenberghe likens it to a patient being told they need to lose 50 pounds by their doctor, they simply need to confront the reality of their situation. Unfortunately, the financial services industry hasn’t come up with its own version of Ozempic yet, and advisors instead have to do the hard work of resetting unrealistic expectations.
Part of answering that question involves helping Canadians set their retirement expectations. If someone expects five star hotels and six months of travel per year, their advisor can show if they are on course for that lifestyle or not. As advisors look to close some of the expectation gaps for their clients, Van Cauwenberghe recommends they obtain their certified financial planner designation.
At the firm level, Van Cauwenberghe admits that many lower income Canadians now lack access to planning services. She argues that firms need to take a segmented approach, offering appropriate services to clients with less than $250,000 in liquid investable assets and giving them access to a financial plan that can begin to answer their retirement questions.
“People who have advisors have a better understanding and have more financial confidence, and so they feel better about where they're at,” Van Cauwenberghe says. “They could have less than $250,000 but they know that they only need a certain amount in order to have the retirement that they want… Others could have the same amount of money or more, but they don't know if they have enough to retire because they haven't worked with anyone, and quite frankly, it's a guess. It's that lack of confidence, that lack of financial wellbeing, that's the difference.”
