Has pandemic “self-care” spending disrupted Canadians’ retirement plans?

It seems that we are starting to near the end of the pandemic, as economies across the country begin to slowly re-open.

But, according to an article in the Globe and Mail, there is concern that Canadians have been spending so much more money on “self care” in light of the pandemic that there may be little left for the retirement savings piggy bank.

The newspaper cites a recent Bank of Nova Scotia study that found “70 per cent of Canadians started partaking in at least one self-care activity during the pandemic, with 60 per cent of those spending an average of $282 in the past 12 months.”

By self-care, the Globe says, we are talking about “online yoga classes, baking supplies, $5,000 Peloton bikes and class memberships, $85 meditation apps, or meal delivery services that take the thinking out of dinner prep.”

While those approaching retirement spent the least on these categories, the Globe says younger people spent plenty. “Although they struggle to find the money for down payments on homes and families, even in good times, the Scotiabank survey found that Canadians 18 to 34 significantly outspent others (on) self-care activities in the previous year.” Their average rate of spend was $395, the article notes.

The article says that while it is understandable that people might spend money differently during the pandemic, it is important that they get back on track now that things are returning to a more normal setting.

“It’s still important for financial advisors to help clients stick to their bigger, longer-term financial goals like debt repayment and saving for retirement,” the article tells us.

Another poll, this one from the National Institute on Retirement Security in the U.S., points out that younger people already have obstacles in the way of their retirement savings plan. The NIRS media release is featured on the Le Lezard website.

In the release, NIRS spokesman Dan Doonan notes that “Generation X and Millennials are the first two generations that will largely enter retirement without a pension,” and states that it is not surprising they are anxious about their long-off golden years.

The research shows that 64 per cent of American Millennials and 54 per cent of GenXers are “more concerned about their retirement security in the wake of the COVID-19 pandemic.”

So let’s link these two ideas. Everyone is spending more on self-care, particularly younger people, due to the pandemic – but there are worries by younger people, GenXers and Millennials, about retirement security, given the lack of a pension at work.

If you don’t have a pension at work, you need to think about funding your own retirement. Government benefits are being improved, but currently deliver a fairly modest benefit. You have the power to supplement that future income by setting up your own retirement savings program. Take a look at the Saskatchewan Pension Plan – it offers everything you need for a do-it-yourself pension plan. You can set up automatic contributions from your bank account, or chip in lump sum amounts throughout the year. SPP will invest and grow your savings, and when you turn in your parking pass and security lanyard, SPP will help you convert that nest egg into an income stream. Check out SPP today, as the plan in 2021 is celebrating its 35^th year of delivering retirement security.

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Is retirement really a gilded life at the end of a rainbow of work?

Not necessarily, says a new research paper from the National Institute on Retirement Security (NIRS) in the U.S., titled The Growing Burden of Retirement . The paper warns that unexpected costs may prove daunting when we’ve reached the after-work stage of life.

Save with SPP reached out to Tyler Bond, one of the authors of the NIRS report, to find out what else the research discovered.

“A lot of people still go into (retirement) with the `golden years’ in mind; they are going to live off their nest egg, travel, they now qualify for Medicare, and they’ll visit their grandkids,” he explains.

But near retirees should also be thinking about any debt they may be carrying into retirement, such as mortgages. “If you own your home, is it paid for?” he asks. “Do you have any health concerns that might cause you to need long-term care? For me, the most important finding of this report is for people to see there is a wide range of outcomes in retirement,” he tells Save with SPP.

As in Canada, “the lack of (retirement) savings has been a problem in the U.S. for a long time,” says Bond. “Fifty per cent of working Americans don’t have access to a retirement savings plan at work, and all the data points to the fact that people are significantly more likely to save for retirement via a plan at work.”

Bond believes “improving access to workplace retirement plans is an essential first step.”

South of the border, 12 states have taken this bull by the horns and have started their own pension plans for those without workplace pensions. These “state-facilitated retirement savings plans” are being rolled out in California, Illinois and Oregon, Bond says, and Colorado and Pennsylvania are expected to follow suit shortly.

Employers set up their employees for automatic payroll contributions, but the employers don’t contribute. The state plans feature “auto-enrolment,” meaning employees get signed up automatically with a right to opt out if they want. Other features include “auto-escalation” of contributions, Bond explains. Most plans start with a five per cent contribution which is gradually ramped up over time to eight or 10 per cent, he explains.

Another great feature liberates people from the tricky decision of choosing what to invest their money in. Most plans place the first thousand dollars in a money market fund and then switch it over to a target-dated fund.

And the plans help turn the savings into retirement income, the “decumulation” phase. “There will be help with decumulation,” Bond says. “The idea is to come up with some way to annuitize the savings,” converting the saved dollars to a lifetime income stream, he explains.

“All these automatic features make it easier for people, easier for them to save, so we are hopeful (the state plans) will adopt these features,” he explains. There has been talk of launching a national version of these “auto-IRA (individual retirement account)” plans, Bond adds.

The new plans are reminiscent of older defined benefit (DB) plans that were “dominant” in the U.S. years ago. Those plans had similar “easy” enrolment and contribution, and looked after investment and decumulation too.

“In the last 30-40 years, defined contribution (DC) plans have dominated in the private sector,” Bond explains. But these plans didn’t all feature contribution increases and don’t always help with the drawdown, retirement income stage. “Over the next decade we will probably see more innovation in the DC space,” says Bond.

Making savings easier is part of the solution, but so is understanding the retirement spending side, Bond explains. “That’s definitely part of it,” he agrees. People “don’t know how to spend their money over the course of a long retirement – the rest of their lives – and all the challenges associated with it.”

“You don’t know how long you’re going to live – 20, 25 years? More? Will you need long-term care, or will your spouse? There’s an assortment of challenges whenever you get to retirement.”

These are issues “that don’t get talked about much,” he says. “Retirement income and retirement costs are not brought together a lot.” The number of Americans carrying mortgage debt into retirement “has significantly increased” over the past decades, and those who are renting are also experiencing cost increases.

Long-term care in the U.S., as in Canada, is very costly. While some citizens qualify for lower-cost long-term care if they qualify for Medicaid (a program for people with low incomes and savings), the rest have to pay many thousands per month for care.

While long-term care insurance exists, it is expensive – mainly because those buying it tend to be those most likely to need it. One state – Washington – is looking at a “social insurance model” for long term care, a state-run program that would help citizens with long-term care costs. Citizens would contribute 58 cents on every $100 of earnings towards this program, he explains. “A social insurance model (for long-term care coverage) is the best way to go… a system where everyone pays a little bit, versus private insurance.”

We thank Tyler Bond for taking the time to speak with us.

If you don’t have a workplace pension plan – or you want to supplement the plan you have – the Saskatchewan Pension Plan may be the program for you. SPP is defined contribution plan. You can contribute up to $6,300 a year (indexed annually) towards your future pension; SPP will look after your investments and will convert your savings to income once you’ve reached retirement age. Employers are able to offer SPP as a workplace pension. Why not check SPP out today?

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