South of the border, near-retirees fear changes to government benefits

Our friends south of the border — those of them who are nearing retirement — are worried that their government-backed Social Security system might not be there for them when they need it.

That was one of the findings of the Allspring Global Investments Annual Retirement Survey; a media release from Allspring walks us through the survey results.

The survey found that retirees with guaranteed sources of income — such as their Social Security, a pension plan, bank account or annuity — have a “more positive outlook on retirement” than those with savings vehicles without guarantees, such as investment accounts, tax-free savings accounts (IRAs) or capital accumulation-style retirement savings accounts. Those who have not yet retired, the media release notes, worry about the solvency of the Social Security system.

Another finding that may resonate with Canadians as well was the idea that American retirees are concerned about “drawing down retirement (funds) tax-efficiently.” More than half of those surveyed hired an advisor to help with tricky taxation related to receiving Social Security and Medicare, and 71 per cent say they want to learn more about taxation.

One of the most eye-opening findings was that “you either reach your savings target, or you don’t.”

“The survey found that a retirement savings plan can help keep workers on track, but it represents several assumptions,” Allspring’s media release states. “Retirement expenses vary widely, while many retirees participate in part-time work and others stop working earlier than expected. Many will adjust their spending—by force or by choice.”

In plainer terms, your retirement spending must align with your new (and usually lesser) retirement income. You can’t sustain a system where you spend more than you take in.

The Allspring research draws a rather surprising conclusion from this, noting that “each year of early retirement before 65 significantly increases the chance of running out of money in retirement,” but also that “even working 10 hours a week after 65 significantly decreases the risk of running out of money in retirement.”

Among the conclusions of the research was that “women, African Americans and Hispanics” are experiencing a wealth gap. “The financial services industry needs to do better in serving these groups,” the media release notes, adding that only 69 per cent of women (versus 87 per cent of men) are “confident their savings will last.” As well, the release states, African Americans generally were more impacted by the pandemic and now expect their retirement will be delayed by two years.

The article makes the point that those with guaranteed income have a more positive outlook. Here in Canada, the chief retirement benefits (Canada Pension Plan and Old Age Security) are lifetime benefits. But if the rest of your income is being drawn down from a registered retirement income fund (RRIF), or you are living off savings, the risk of running out of money is certainly possible.

A solution available to members of the Saskatchewan Pension Plan is the annuity. SPP offers several different types, but all of them will result in a monthly payment that you’ll receive on the first of every month for life. It’s an option worth considering for some or all of your SPP savings when you reach the “time to collect” stage. Check out SPP today!

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