With the abolition of mandatory retirement in Canada, when you opt to actually leave the world of paid work for good is your own decision. There are financial milestones that may influence you  such as when you think you have saved enough to support yourself in retirement, but when you are ready to let go is also dependent on many more intangible factors.

After all, you not only need to retire from your job or your encore career, but you have must have something to retire to. For example, in the last several years I have joined a choir, been elected to the choir board and started taking classes at the Life Learning Institute at Ryerson in Toronto. Yet I’m still not quite prepared to give up my part-time business as a personal finance writer.

I was reminded of this conundrum reading a personal column by David Sheffield in the Globe and Mail recently. He wrote, “Turning to the wise oracle of our time, Google, I search: When do you know that it is time to retire? Most answers are financially focused: ‘When you have saved 25 times your anticipated annual expenditures.’ One site tackles how to be emotionally ready to quit work: ‘The ideal time to retire is when the unfinished business in your life begins to feel more important than the work you are doing.’”

The changing face of retirement by Julie Cazzin appeared in Macleans. She cites a 2014 survey by Philip Cross at the Fraser Institute. Based on the study, Cross believes Canadians are actually financially—and psychologically—preparing themselves to retire successfully, regardless of their vision of retirement.

“The perception that they are not doing so is encouraged by two common errors by analysts,” notes Cross. “The first is a failure to take proper account of the large amounts of saving being done by government and firms for future pensions …. And the second is an exclusive focus on the traditional ‘three pillars’ of the pension system, which include Old Age Security (OAS), the Canada and Quebec Pension plans (CPP/QPP), and voluntary pensions like RRSPs.”

He notes that the research frequently does not take into account the trillions of dollars of assets people hold outside of formal pension vehicles, most notably in home equity and non-taxable accounts. Also, he says the literature on the economics of retirement does not acknowledge the largely undocumented network of family and friends that lend physical, emotional and financial support to retirees.

Retire Happy’s Jim Yih addresses the question How do you know when it is the right time to retire?  After being in the retirement planning field for over 25 years, Yih believes sometimes readiness has more to do with instinct, feelings and lifestyle than with money. “I’ve seen people with good pensions and people who have saved a lot of money but are not really ready to retire.  Sometimes it’s because they love their jobs,” he says. “Others hate their jobs but don’t have a life to retire to.  Some people are on the fence.  They are ready to retire but worry about being bored or missing their friends from work.”

If you are still struggling with how to finance your retirement, take a look at Morneau Shepell partner Fred Vettese’s article in the March/April issue of Plans & Trusts. Vettese reports that few people are aware it can be financially advantageous to delay the start of CPP benefits. In fact, less than 1% of all workers wait until the age of 70 to start their CPP pension. However, doing so can increase its value by a guaranteed 8.4% a year, or 42% in total. And by deferring CPP, he notes that workers can transfer investment risk and longevity risk to the government.

Tim Stobbs, the long-time author of Canadian Dream Free at 45 attained financial independence and left his corporate position several months ago. In a recent blog he discusses how his focus has shifted from growing his net worth to managing his cash flow. His goal is to leave his capital untouched and live on dividend, interest and small business income from his wife’s home daycare. He explains how he simulates a pay cheque by setting up auto transfers twice a month to the main chequing account from his high interest savings account.

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Written by Sheryl Smolkin
	Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

By Sheryl Smolkin

My husband and I are both looking at age 65 in the rear view mirror and we are helping to manage my elderly mother’s affairs. I think we have a pretty good grasp of what retirement costs and how easy it would be to eat through our nest egg if we are not careful.

That’s why I can’t help but be surprised by the results of the recently released Morneau Shepell study Forgotten Decisions: the disconnect between the plan and reality of Canadians regarding health and finances in retirement. The survey discovered many people make unrealistic plans based on the amount of income they are actually contributing to a retirement fund versus their expected annual withdrawal.

Expected withdrawal rate unreasonable

More than one-third (35%) of employee respondents report they are saving 10% or less of their current salary for retirement. Even more concerning is that, on average, employee respondents plan to withdraw 15% of their total savings a year following retirement – four times the rate that is typically recommended.

“More than 70% of respondents are planning to withdraw more than the recommended amount annually,” says Paula Allen, Vice President, Research and Integrative Solutions, Morneau Shepell. “There is an evident disconnect between how long retirement income typically needs to last, the savings pattern of many, and the withdrawal plans of most.”

The survey also found that responsibilities in retirement may include the need to support dependants. Seventeen percent of respondents indicated that supporting dependants was among the most important financial issues. Thirteen percent indicated concern regarding their support of dependent children and 14% indicated concern about the support of elderly parents.

Under-planning for health costs

The survey found that nearly two-thirds of employees age 50 and over (61%) are currently suffering from one or more chronic health conditions. Despite this, 97$ of survey respondents described their current level of health as being good, very good, or excellent and a large number of employees (86%) are expecting to retire in good health.

“Chronic health issues are so commonplace that sometimes they are accepted as the norm. Unfortunately, this can lead to complacency and lack of investment in one’s own health and lack of preparation for health costs,” said Allen. “The cost of chronic health issues, which often increase with age, can be a big shock during retirement, as employer health benefits may no longer be available for medication and other health-related support. As well, the public drug plan covers much fewer medications than most employer-sponsored plans.”

The most common chronic conditions affecting survey respondents include hypertension (25%), arthritis (24%), high cholesterol (18%), diabetes (12%), and depression, anxiety or other mental health problems (9%).

“Health is one of the most important factors to consider when preparing for retirement,” noted Allen. The majority of respondents (59% ) indicated they will not have access to an employer-sponsored health benefits plan after they retire. Two-thirds indicated health costs as one of their top concerns in retirement.

Employer/employee perceptions differ

Of the employees surveyed, one in four (24%) indicated that when they choose to retire, they will not be financially prepared. Twenty three percent of employee respondents plan to rely on government pension programs as a primary source of retirement income.

On average, however, more than half (51%) of employer respondents indicate that their employees will not be financially prepared when they retire. Furthermore, employers believe that one-third of their employees will not be financially prepared to deal with a health crisis when they retire.

Almost all employer respondents (96 %) indicated that it is important for employees to know that health costs will impact retirement income. Despite this, a large proportion of employers (29%) reported that they do not provide retirement-related financial information.

“Employers clearly see risk in the retirement preparedness of employees, but often do not have the systems in place to offer the necessary support and education,” said Allen. “Providing employees with more knowledge on the facts and options for personal financial management and health cost issues in retirement is crucial to adequately prepare employees for their transition to retirement.”

By Sheryl Smolkin

Next week Federal Finance Minister Bill Morneau will again be meeting with provincial and territorial finance ministers to talk about options for improving Canada Pension Plan benefits. This protracted discussion has been going on for as long as I can remember, but the hurdles remain the same.

CPP changes require the support of Ottawa plus seven of the 10 provinces representing two-thirds of the population. When the finance ministers last met in December 2015, Ontario which is currently going at it alone, PEI, Manitoba, Nova Scotia and New Brunswick gave CPP improvements a “thumbs up.” Quebec, B.C. Saskatchewan and Alberta vetoed the idea.

Here are some links to recent articles in the mainstream media that will bring you up-to-date on the various arguments made by stakeholders in the debate.

Larry Hubich, president of the Saskatchewan Federation of Labour says the proportion of their incomes that Canadians put into CPP, and will someday get back as pension payments, “is not enough.” Nevertheless he is optimistic since many Canadian politicians — including Prime Minister Justin Trudeau — agree there’s a pension problem because many Canadians can’t retire on what they’ll get from the CPP under current rates.

After the finance ministers met in December 2015, Dan Kelly, president and CEO of the Canadian Federation of Independent Business (CFIB), and Marilyn Braun-Pollon, Saskatchewan vice-president of CFIB told the Regina Leader-Post that small business owners are relieved that Canada’s finance ministers have put plans to expand the Canada Pension Plan (CPP) on hold. “They are relieved but they’ve expressed a desire to see a shift in the conversation,” Braun-Pollon said.

The Globe and Mail reports that a coalition of business groups and youth advocates is calling for an expanded Canada Pension Plan, but only if it is targeted at middle-income levels. The coalition argues that higher premiums to pay for more generous retirement benefits should kick in at annual earnings of about $27,500. They argue helping Canadians who earn less than that is better accomplished through Old Age Security and the related Guaranteed Income Supplement.

The Ontario government recently announced it is delaying the introduction of its Ontario Retirement Pension Plan until 2018 while it negotiates with the federal government and other provinces on an enhanced CPP. However, at this point, the government says it still intends to proceed with the ORPP as it’s unlikely that all provinces can agree on a CPP enhancement large enough to take the place of the ORPP. Here’s what you need to know about the ORPP:

And Fred Vettese, the Chief Actuary of Morneau Shepell writes in the Financial Post that he is actually in favour of CPP expansion if it is done right. He says one thing it will certainly do is to raise the under-savers (and there are many of them) closer to the standard of living they enjoyed while working. The unanswered question is how much closer should they be without having to save on their own?

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