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By Katlyn Eriksen

Sound Off

SOUND OFF: How Canadians are Preparing for Retirement During Uncertain Times

Jan 28, 2022 | 10:30 AM

Fidelity’s 2021 Retirement Report suggests that COVID has had a major impact on how Canadians prepare for retirement. Compiled from data collected in August 2021, the report sheds light on how both pre- and post-retirement respondents have been affected by shifts in global culture brought about by the COVID-19 pandemic. Twenty-one per cent of pre-retirees surveyed said that the pandemic would delay their plans to retire, while 30 per cent of pre-retirees surveyed cited boredom as a major factor that prevented them from retiring as early as they’d like. While financial factors remain a major concern for those looking to retire, the fear of being stuck at home with nothing to do — not even work — is causing many Canadians to push their retirement back a few years and continue working.

Pension Performance

Uncertainty over future financial events looms over the head of Canadian pre-retirees. Fidelity’s report found that 56 per cent of pre-retirees were concerned with the impact of rising costs of living on their retirement savings. Despite fears about future inflation, actual pensions have been performing incredibly well recently. In December, the average solvency index of pension plans rose slightly to a whopping 112 per cent, while the pension expense index dipped to 77.6 per cent. The first measure tracks the ratio of assets held in a pension versus expected payouts, while the second tracks the expense of maintaining a pension account. Both trends suggest that pensions will be stable in the short term future, and some account holders may even benefit from cashing out some extra assets while still maintaining a solvency index of over 100 per cent.

National Investment

As a country, Canada places an unusually high priority on pensions. Not only is Canada one of only six OECD countries that spends more than one per cent of its GDP on tax expenditures for retirement savings, but it also maintains one of the six highest pension-asset-to-GDP ratios among OECD nations. Still, it’s becoming increasingly popular to have precious metals in a retirement account as a hedge against inflation or to use ETFs and other financial vehicles that are pinned to the price of gold or silver. Innovative new services like the Vaulted app, which allows investors to purchase physical gold that’s then held in the Royal Canadian Mint, are becoming more and more standard on the diversified balance sheets of well-prepared pre-retirees.

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Planning For Success

Fidelity’s report suggests that the key to preparing for retirement is having a written plan. Eighty-five per cent of pre-retirees with a plan felt financially prepared for retirement, compared to 46 per cent without. Respondents with a written plan felt better emotionally, socially, and physically prepared for retirement as well. The report found similar boosts among respondents who worked with a financial advisor, although it’s likely that these two categories are related. Of the 25 per cent of respondents with a written plan for retirement, 86 per cent worked on that plan with their financial advisor.

Changing Travel Culture

Retirement is likely to change in a post-COVID world and some of the prep that Canadians will have to do isn’t of the financial sort. Snowbirds, the demographic of mostly older people who travel to warmer climates during the winter months, were profoundly impacted by COVID travel restrictions. Not only did their lack of travel opportunities cause huge financial ripples in both their Canadian homes and their winter abodes, it triggered a cultural shift in the expectations that Canadians have for their post-retirement lifestyle. Financial advisors are beginning to compare the later stages of retirement to a COVID lockdown, giving pre-retirees a glimpse of what life is like as age catches up and travel starts to feel like a chore. Factors like being close to family, having parks within walking distance, and having great views out of your windows start to become a lot more important when you can’t winter in Florida.

An Unknown Future

Overall, Canadian retirement preparedness is a mixed bag. Fifty-six per cent of Fidelity’s respondents were concerned with rising costs of living and 53 per cent felt like they hadn’t saved enough to feel comfortable. Despite this, financial data suggests that pensions are stable and performing well, while strong national support for pensions continues. Having a written plan for retirement seems like one of the most effective ways to help feel prepared for the next stage of life, especially if it guides you to a balanced portfolio that you feel comfortable with and a careful consideration of how the changing culture of global travel may affect your retirement plans. Even after the virus is long gone, the communications technologies, delivery services, and lifestyle changes we adopted to survive the lockdown will remain. It might be difficult for the newly retired to travel the world, but it’ll be easier than ever to bring the world to them.

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Editor’s Note: This opinion piece reflects the views of its author, and does not necessarily represent the views of CFJC Today or Pattison Media.