Newly-minted retirees finding golden years expensive, thanks to inflation

Writing in the Financial Post, Victoria Wells reports that new retirees – who jumped ship on work due to the pandemic – are finding their golden years more expensive than they expected.

She notes that many folks left their jobs earlier than planned due to COVID-19.

“One-third of Canadians who recently exited the workforce say they moved up their retirement date, according to a poll of people aged 55 to 75 for RBC Insurance,” she reports.

Thirty-four per cent of those responding to the RBC survey said they “left their jobs earlier than planned” due to the pandemic, the article notes. “Another 30 per cent of those who haven’t yet made the leap to retirement says they’re planning a change in date, either sooner or later, thanks to the pandemic,” her report adds.

But, the article notes, there’s a problem – retirement is getting pricey.

“One in four said they’ve ended up spending more than expected, and 41 per cent said they’ve been hit with surprise expenses, including expensive house repairs and rising costs of health care and transportation, or having to provide unexpected financial support for family,” Wells writes.

Meanwhile, she adds, “inflation hit 6.7 per cent in March from the same time last year, the highest gain since January 1991, bringing sticker shock for consumers at the gas pump and grocery store.”

Since then, inflation has continued to climb, reports Wells, and the Bank of Canada hasn’t ruled out further rate hikes to try and combat inflation.

With those newly retired reporting higher costs, will soon-to-be-retired workers try and hold on to their gigs?

“The events of the last two years are clearly affecting Canadians — including those nearing retirement,” states Selene Soo, director of Wealth Insurance and RBC Insurance, in the article. “And with the current high inflation rate added to the mix, many are feeling concerned about their purchasing power and increasing expenses.”

Inflation is a worry for 78 per cent of those surveyed by RBC Canada, the article notes. Statistics from a C.D. Howe Institute study, authored by noted retirement expert Bob Baldwin, show that house prices have doubled in the last 20 years. As well, the study (cited in the Post article) notes, retirement assets (registered retirement savings plans, tax-free savings accounts, and workplace pensions) have jumped to $158,000 on average, more than twice what they were in 1999, there’s still concern out there.

A shocking 25 per cent of those aged 45 to 64 have no retirement assets at all, the article notes. Those without workplace pension arrangements tend to have little to no TFSA or RRSP savings, states Baldwin in the Post article.

“These realities suggest that a minority of the future elderly may have trouble maintaining their standard of living in retirement,” he states in the article.

Wells has done an excellent job of pointing out a very serious issue – the growing lack of workplace pensions.

If you are fortunate enough to have a workplace pension arrangement of any kind, be sure to sign up for it and contribute as much as you can. This is especially true if you haven’t planned (or started) to save much on your own for life after work.

If you’re not sure how to go about saving for retirement, the Saskatchewan Pension Plan may be the option you are looking for. You can contribute up to $7,000 annually to SPP, and can transfer in $10,000 more a year from other retirement savings vehicles. SPP will look after the hard work – investing your money in volatile markets – and when the time comes to give back your security badge and parking pass, SPP will turn those savings into income. Check out SPP today!

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By Sheryl Smolkin

While most (94%) Canadians aged 55 to 75 ‘agree’ that they would ‘like to have guaranteed income for life’ when they retire, a new Ipsos poll* conducted on behalf of RBC Insurance finds that just two in ten (22%) Canadians agree that ‘Canadian public pension plans (such as CPP/QPP/OAS) will provide enough retirement income’ for them. In fact, most (78%) disagree that these pension plans will suffice.

It’s no surprise then that six in ten ‘agree’ that they’re ‘worried about outliving their retirement savings’, while four in ten ‘disagree’ that they’re worried. Women (66%) are considerably more likely than men (50%) to be worried about outliving their savings, as are those aged 55 to 64 (62%) compared to those aged 65 to 75 (52%).

Atlantic Canadians (67%) are most worried about outliving their retirement savings, followed by those in Ontario (63%), Alberta (60%), Quebec (59%), Saskatchewan and Manitoba (58%) and finally British Columbia (41%).

One way of supplementing retirement income is through the use of an annuity, but many Canadians aged 55 to 75 appear in the dark about what an annuity is and how it might help them. In fact, six in ten say ‘that they ‘don’t know much about annuities’, while four in ten disagree that they lack knowledge in this area.

Women (71%) are significantly more likely than men (51%) to say they don’t know much about annuities, as are those aged 55 to 64 (66%) compared to those aged 65 to 75 (55%). Albertans (75%) are most likely to admit they don’t know much about annuities, followed by those living in Saskatchewan and Manitoba (71%).

Responses to this quiz also confirm that many Canadians lack fundamental knowledge about annuities. Just 55% of Canadians were able to answer more than half of the questions correctly, and only 6% got all six questions right. British Columbians (62%) were most likely to pass the test, followed by those in Quebec (57%), Ontario (54%), Atlantic Canada (53%), Alberta (52%) and finally Saskatchewan and Manitoba (49%).

• Just four in ten believe that it is true that they need a licensed insurance advisor to buy an annuity. In contrast, six in ten believe this is false – when in fact, it is true.
• Seven in ten correctly believe it’s true that there are potential tax savings to investing in annuities, while 29% incorrectly believe this to be false.
• Half incorrectly believe it’s true that annuities last for a specific period of time, while the other half believes this is false, which is the correct answer.
• Seven in ten correctly believe it’s true that annuities can provide guaranteed income for life, while three in ten incorrectly believe this to be false.
• Half think it’s true that annuities are not a good investment during low interest rate environments, while the other half correctly believes this to be false.
• Three quarters correctly believe it’s true that they can invest in an annuity using their RRSP and/or RRIF savings, while 27% incorrectly think this is false.

Despite the majority being uneasy about their retirement savings, just one in three agrees that they are exploring or considering annuities as part of their retirement plan, while most (65%) are not. One quarter say they have an annuity.

Members of the Saskatchewan Pension Plan can opt at retirement to receive an annuity payable for life. Life only, refund and joint survivor annuities are available.

*These are some of the findings of an Ipsos poll conducted between August 7 to 14, 2015 on behalf of RBC Insurance. For this survey, a sample of 1,000 Canadians aged 55 to 75 from Ipsos’ Canadian online panel was interviewed online.