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By Jonathan Chevreau
National Post
FP Investing
Personal Finance
Tuesday, February 17, 2004
Forget "Freedom 50-something" -- Canadian Baby Boomers will be lucky to retire by 65 at the rate they're saving.
So claims the annual Desjardins Financial Security survey conducted by Montreal-based SOM Research. "Canadians need to forget their dream that they can stop working at age 65," says the survey, released yesterday. "Gone are the days of retiring with an abrupt stop and never working again for monetary gain."
Adrian Mastracci, investment counsel and president of Vancouver based ‘fee-only’ KCM Wealth Management, says, “A 50-year-old man wishing to retire at 60 with an annual income of $60,000 in today's dollars would need $1.45-million. A woman would need $1.6-million to provide the same income over her expected lifetime.”
The dream of retiring at 65 will be dead within five years, predicts Taylor Train, director of business development for Desjardins. The "new reality" will be phased or "progressive" retirement.
Of Canadians above age 39, 61% are planning a phased-in retirement. Even if they wish to retire, this group plans to become self employed and work 21 hours a week in the early years of what used to be full retirement.
The survey of 1,501 Canadian adults was directed to all ages but found Baby Boomers running out of time. Of those still in the work force aged 40 to 64, fully half don't believe they can retire by 58, let alone 55. For those still in debt or who procrastinated in starting RRSPs, another decade of savings may not be long enough to pull off early retirement. Two thirds (67%) hope to do so between 56 and 65, and 92% figure on the traditional retirement age of 65.
"Freedom 55 doesn't exist any more," says Train. "Freedom 55 was one of the greatest marketing ploys ever, just brilliant," he said in an interview. "Folks would have to pull down an awful chunk of change, save a big chunk and have a darn good rate of return to get out of university at 22 and retire at 55."
Freedom 55 is a slogan of London Life Insurance Co., which zealously protects its trademarked catch-phrase. Spokesperson Marlene Klassen says much has changed since the 1980s, when the slogan became identified with early retirement.
"Canadians now expect retirement may start considerably later and take various forms," she agreed. But despite changes in demographics and the economy, "we've retained the Freedom 55 brand because Canadians tell us it offers tremendous value and is now identified with more than just early retirement."
Even the lucky few -- politicians, government workers and those who joined good corporate Defined Benefit pension plans right out of college -- will likely embark on second careers at 55, Train says.
But the rising trend to self employment means fewer workers will be covered by such gold-plated pensions.
The Canada Pension Plan and Old Age Security kick in at 65 (and reduced CPP as early as 60), but today's workers will need to build massive RRSPs to retire in style, Train says. He suggests $500,000 in an RRSP and $250,000 more in non-registered savings.
Even that may be too optimistic, particularly for women, who live longer, says Vancouver fee-only advisor Adrian Mastracci of KCM Wealth Management. At 60, a retirement plan may have to provide for 30 more years of life. Mastracci adds five or 10 years to life expectancy when making projections, depending on health perceptions and family longevity.
A 50-year-old man wishing to retire at 60 with an annual income of $60,000 in today's dollars would need $1.45-million, Mastracci says. A woman would need $1.6-million to provide the same income over her expected lifetime.
Ten years ago, most clients didn't start worrying about retirement till they reached age 40, Mastracci says. But today, people are calling in their early 30s to get a ballpark estimate of what they'll need to save.
While 75% of those resigned to phased retirement indicate they will do so for the extra income, 51% also see social benefits in so doing. Also, 83% said they do not want to be totally inactive. Even so, 82% will do so "to maintain [their] standard of living for a while."
Semi-retirement may be a viable plan for healthy people in early old age, but lengthening mortality also has major implications for advanced old age. Once physical or mental incapacity makes even part-time work impossible, retirees will have to budget for a significant rise in health care costs or long term care.
Not all Boomers agree retirement in their 50s is impossible. "Nonsense. Early retirement remains entirely doable," says Lethbridge,-based Keith Betty, who posts as Shakespeare on a boomer discussion forum. "You have to spend less than you earn, keep out of debt and invest a significant proportion of your income in a well-diversified portfolio."
Norbert Schlenker says the Desjardins findings do not quite jive with a similar survey Statistics Canada conducted last year. It found that even counting private pensions, "Canadians are quite unprepared for retirement."
The Stats Can survey assumed retirement income replaced 67% of working income, which some view as too high. It found early boomers over 45 are not on track to have sufficient savings to retire even at 65. Schlenker concludes those responding to the Desjardins survey were, if anything, too optimistic.
"Something will have to give," Schlenker says. "For most people, it will have to be one or more of the financial planner's standard Four Horsemen: retiring later, accepting a lower standard of living in retirement, jacking up current savings rates, or taking more risk in their retirement portfolios."
Progressive retirement is just a variant of retiring later, but even that may be out of reach for many, Schlenker says.
Semi-Freedom 65, anyone?
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