Retirement ‘becoming unaffordable’ for many Canadians. What can they do?

Canadians hoping to retire in the coming years are still feeling like their finances won’t stretch far enough despite recent easing on inflation, a new report finds.

Retirement experts say that’s pushing many Canadians to rely on the support of family or make lifestyle changes as health complications add to the financial burden.

A report released Wednesday by Toronto Metropolitan University’s National Institute on Ageing tracks retirement readiness among those aged 50 and older.

Only about a third of those over 50 (35 per cent) who plan to retire indicated that they were financially prepared to do so. Some 39 per cent said they did not feel financially ready to retire, while 26 per cent said they’re unsure if they can afford to retire when they want to.

While the needle hasn’t moved much on overall retirement readiness from the inaugural Ageing in Canada survey a year earlier, the latest report found that older Canadians faced new pressures over the past year tied to higher borrowing rates and market volatility. Annual inflation, though it largely cooled over the course of 2023, was still listed among the factors fuelling an economic hardship for both existing and would-be retirees.

Natalie Iciaszczyk, research program manager at the NIA, tells Global News that the rising cost of living is eating away at Canadians’ ability to save, as more of their monthly cash flow goes to daily expenses rather than long-term investments.

“Inflation has made it harder for Canadians who are still working to get by, and that makes it harder for them to be able to set money aside for the future,” she says.

Iciaszczyk says it’s not clear from the two years of NIA studies whether the financial pressures are pushing Canadians to push back their retirement age.

While 50 per cent of those aged 80 and older indicated during the survey that they’re confident about being able to retire, the NIA report points out that half of this oldest cohort is not feeling able to, suggesting these workers are holding onto jobs “out of necessity, rather than choice.”

Lianne Di Rocco, a portfolio manager at BMO Nesbitt Burns, says she’s seen a shift among clients who are saving for retirement on their own, rather than holding a company-sponsored pension plan.

Putting more of the onus on the individual rather than the financial system to support people into and during their retirement means personal wealth is often “depleting” at a faster rate than before, Di Rocco says. At this point, government support is not sufficient to give Canadians the confidence they need to retire on time, she adds.

“We’re fortunate that we still have Old Age Security and our Canadian Pension Plan … but the cost of inflation, the cost of food, it’s becoming so expensive. It’s not enough,” Di Rocco says.

The rising cost of housing is also impacting seniors, Di Rocco notes. If retirees are banking on equity from their home to fund their retirement, that typically means selling and either purchasing a smaller property or renting a unit, both of which might be facing price pressures amid tight supply in the Canadian market.

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The rising cost of living was cited as the top concern for 70 per cent of the 50-plus survey participants. Simply running out of money was the next more common concern (46 per cent), following by a reduction in government pension plan or other benefits (37 per cent) and not being able to afford major medical or long-term care expenses (32 per cent).

Iciaszczyk says the retirement calculation has been changing for Canada’s aging population, simply because they’re tending to live longer than previous generations and need to stretch their savings for longer.

The NIA report suggests a close link between Canadians’ retirement readiness, income levels and their overall health as they prepare to exit the workforce.

Respondents were much more likely to describe their income as “good enough” when they indicated they were in very good or excellent health (47 per cent) than if they felt their health was only fair or poor (20 per cent).

Aging can also come with unexpected out-of-pocket healthcare costs, Iciaszczyk notes, which tend to be “very, very high.” Canadians typically aren’t thinking about factoring those costs into their retirement planning, she says, and are instead thinking about how they can maintain their current standard of living.

Di Rocco says that many Canadians have the first 10 years of their retirement pretty accurately accounted for, but it’s the unknowns of aging that can quickly see a financial plan unravel.

“It’s that uncertainty as we get older, as our health starts to fail. What does that look like? What is the cost and can I afford it? And if I can’t afford it, what are my options?”

For many, the higher costs of care and other dependencies involve hiring a caregiver. But when the money isn’t there, Di Rocco says many instead turn to moving in with their adult children to support them.

These situations can be emotionally taxing, but also add “economic stress” to not just the retiree but their family as well, she adds. Younger generations might have been counting on inheritances or other support as their parents age, but are now seeing those assets increasingly go towards care costs, she says.

“That is maybe changing the economic outlook for the younger generation,” Di Rocco says.

Di Rocco says that over her 30 years in financial planning, care costs haven’t been a big part of the conversation, but that’s starting to change.

She says that when she has a client who’s nearing retirement age, she’ll suggest modelling multiple possible scenarios. That could mean pricing out how much it would cost to hire a caretaker or other supports, and how those costs differ whether someone is living in a larger city or not.

A Deloitte Canada survey released in November also projected that most Canadians nearing retirement will have to make “significant” lifestyle changes to be comfortable in retirement.

Winnipeg-based financial planner Jason Evans told Global News at that time that he also games out possible scenarios for a household’s individual inflation rate in their golden years and how they can adjust their spending even 10 years away from retirement to make the transition smoother.

One of the benefits of doing a financial audit of your savings strategies a decade ahead of retirement is that by shifting spending habits now, an individual can both save more money over that horizon and end up needing less money overall when they do call it a career, Evans said.

“You get that double benefit,” he says. “That’s really powerful.”

He also recommended individuals push back the age at which they access CPP to maximize their benefits through the rest of their retirement.

The NIA Ageing in Canada study is two years into a decade-long project, where a new report will be published each year. But researchers warn it’s too early to draw trends about the reports’ findings at this juncture. The study did not come with recommendations on how to address concerns facing older Canadians.

Di Rocco, meanwhile, says she’d like to see the federal government recognize the retirement gap facing Canada’s aging population.

“It’s becoming unaffordable for Canadians to feel confident about their retirement and what their later years in life will look like,” she says.

“I do think that we will need the government to step up and provide some additional support in that area for the people who can’t afford retirement.”

– with files from Global News’s Nivrita Ganguly


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