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Fundamentals key to prosperous retirement

Another fall approaches, and I've once again been asked to teach a tax course at a local college. I never get paid. Instead I'm provided the opportunity to attend, free of charge, any courses offered by the school. My wife, Carolyn, likes this arrangement. The courses they offer, she argues, tend to prepare me for the rest of my life.

This year, I'm enrolled in three courses: (1) The After-dinner Dishes And Silverware: Can They Levitate and Fly Into The Kitchen Sink? Examples On Video; (2) Learning To Live: Basic Differences Between Mother And Wife. Open Forum And Role Playing; and (3) How To Be The Ideal Shopping Companion. Relaxation Exercises, And Breathing Techniques.

There was also a course on preparing for retirement that seemed useful to me. And judging by the results of the recent General Social Survey undertaken by Statistics Canada, which were released this month, many could use the course.

The survey

The survey was completed at the end of last year, and 25,000 Canadians between the ages 45 and 59 were surveyed. These folks were representative of the six million Canadians in that age group in Canada. The survey revealed that 12 per cent of those in this age group did not know when they would retire, and 18 per cent said they did not intend to ever retire. That is, nearly one-third, or 1.4 million Canadians in this age group, were unsure about retirement or plan not to retire.

Could it be that Canadians love their work so much that they just can't see retirement as an option? Yeah, right. The truth is, the survey results are consistent with a 1999 Survey on Financial Security that showed that one-third of Canadians may not have saved enough to replace two-thirds of their earnings, or to generate income that will keep them above Statistics Canada's low-income threshold.

Now, the trend has been to retire at a younger age, not older, since the late 1970s. The average planned retirement age has dropped to 61 from 65 since that time. It could be that this trend is now reversing as a result of, perhaps, retirement savings hurt by weak equity markets, longer life expectancies, or for other reasons. One thing seems certain: One-third of Canadians are unlikely to retire as soon as they'd like, primarily for financial reasons.

The fundamentals

The survey shed light on the type of people who are most likely to have problems retiring, or living well in retirement. If you want to avoid being in that one-third group that may have difficulty, consider the following fundamentals.

Create a pension. Those without a pension plan generally suggested in the survey that they were more likely to have inadequate resources to make it through retirement, or to retire at all. No big surprise, but it's a reminder that if you're not in a pension plan at work, you'd better create one for yourself, likely in the form of a registered retirement savings plan, then contribute! Some form of retirement plan is not an option, it's a necessity.

Own your home. Those who did not own their homes were much more likely to claim to have inadequate resources to retire. You might argue that it's because they have inadequate resources that they don't own a home. It's the chicken or the egg syndrome. Experience shows, however, that home ownership as a forced savings plan typically gives rise to a greater net worth over time, and you should consider making other sacrifices today to own your home.

Maximize your income. The survey showed that those with incomes under $20,000 annually were almost three times more likely to say they did not intend to ever retire than those earning over $40,000 annually. While earning more income may not always be easy, you should take time to contemplate the ways you might be able to earn more. Further education, a job change, a part-time business, and minimizing discretionary expenses come to mind.

Stay married. Those in the survey who were separated or divorced were far more likely to feel inadequately prepared financially for retirement. And other statistics support the notion that folks in this situation do in fact have significantly greater financial struggles. While it may not be easy work to stay together, give it serious thought.

Prepare for health problems. A full 27.3 per cent of those over 65 in the survey receive care for a long-term health problem, and 18.5 per cent of those over age 45 give informal care to someone with a long-term health problem. When you save for retirement, don't forget to count the potential cost of attendant or similar care. An unexpected illness can cost you.

Tim Cestnick, FCA, CFP, TEP is author of The Tax Freedom Zone and Winning the Tax Game 2003. He is managing director, National Tax Services, at AIC Ltd.

tcestnick@aic.com



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