New Needs: Tax, Retirement and Long-Term Planning

Evelyn Jacks

A recent study by the Canadian Institute of Actuaries sheds new light on the needs of Canadian retirees and pre-retirees for sound financial planning for their futures. COVID has had a dramatic effect on retirement plans, overall health and on preparedness for long-term care in the future. Surprisingly, more than half do not have a financial plan for retirement. This is an important time for astute tax and financial advisors to work more proactively with new and returning clients. Six planning tips follow.

Released on September 28, 2021, the study was conducted in July and August of 2020 on 1,500 Canadians over 18 to gauge understanding about retirement risk concerns and preparedness. Some additional findings:

1. More than one in three Canadians don’t own any life, disability, critical illness or long-term care insurance.
2. One in five retirees have less than $25,000 in savings and investments
3. Just over 31% feel they are likely to experience a physical or mental disability later in life, while actual experience indicates that disability rates at age 75 plus are over 47% - a disconnect, in other words from the reality Canadians will face later in life. Yet, 67% of Canadians have not done anything about planning for long term care needs despite the fact that more than half (55%) feel that the quality of such care is fair to poor.

Even more concerning is that 40% of non-retired Canadians don’t know when they will retire and 14% think they will never retire.  About 23% of non-retirees felt their or their spouse’s retirement timeline was impacted by COVID - 69% of those Canadians surveyed feel they (or their spouse) will spend more years working than they thought to continue to generate income. 

But the Pandemic has impacted younger people, too. Only 30% of Canadians age 45 and up reported being in very good to excellent health.  What is shocking about this is that this has dropped from 51% in a 2012 CIA Survey.  

Income levels have also been affected:  36% of those survey reported earning less household income due to COVID-19 and 25% of Canadians have taken on additional debt.  

CIA President Jacqueline Friedland, FCIA, summed up the survey results well, with a message to financial professionals:    “These survey results show that Canadians need a lot more support and information to protect themselves in their old age. We will be looking to our partners in governments, financial institutions, and other retirement professions to work with us towards solutions on these issues.”

Here is what tax and financial advisors can do now to proactively address these big financial disruptions which will require a new focus on retirement income planning:

• Bring up the topic of debt and cash flow management with all clients
• Review whether there is adequate risk management with insurance
• As part of year end tax planning, review the size of taxable 2021 income and consider a corresponding reduction in the December 15 instalment payment, if income has dropped
• Review of net worth statements to reconsider income-producing power of savings, especially in light of new higher inflation numbers
• Discuss the best way to use increasing RRSP contribution room, due to longer working years.Remember the contribution can be made to the plan while the taxpayer is age-eligible, but the deduction itself can be postponed to offset future income.
• Do a review of when to take the CPP or OAS; a postponement will increase benefits later, to help with inflation concerns.

Additional educational resources: Join us at the November 30 National Conference on Pensions for CCPCs on the theme: Future-Proofing the Next Generation of Canadian Controlled Private Corporation Owner-Managers. Owner-managers have important tax planning options for retirement not typically introduced by their advisors.  Delegates will have the opportunity to earn CE Credits while positioning themselves with a new value proposition. Advisors from the accounting and financial services who work with SME owner-managers who run a CCPC will benefit from attending this half day virtual conference.