The New Income Source In Retirement: It’s Not What You Think

In the past, retirement income planning was largely focused on how much pension income was needed to replace employment income, for a taxpayer and his/her spouse to live comfortably until death. That has now changed, significantly.

It is becoming increasingly clear: boomers’ work life won’t end soon. Although so many people are so close to the traditional retirement age, the fact is that many people in today’s society will continue to work to some extent past that date and will not have what we know as a traditional retirement.

One reason is that people today are generally healthier and living longer. Statistics Canada data reveals that although 85% of Canada’s workforce is aged 25-54, there has been a 140% increase in workers over age 65 since 2005 and a 67% increase in workers over 55. This trend to deferred retirements may be a good thing, given the effects of depopulation on modern economies.  Adding employment income to the traditional mix of pension withdrawals is an interesting new wrinkle in retirement income planning.

But longer healthy lives are not the only reason Canadians will keep working, Canada’s economic malaise is affecting income levels and standards of living in retirement. Overall, Canada’s recent productivity factor is 25% below US levels and lower than the average for G7 countries based on the World Economic Forum’s Global Competitiveness Index.

The massive numbers of boomers set to retire in the coming years will also continue to spur labor shortages.  Here’s why that’s important:  just as labor growth spurs on economic activity, labor shortages slow it down.  This demographic trend presents challenges not only to Canada’s economic growth, which is not expected to expand much over 2% in the foreseeable future, but also to investment performance, which affects the ability to grow and preserve adequate retirement portfolios.

What will all of this mean to the way we do retirement income planning for boomers in particular? Simply this: advisors need to be prepared to customize the retirement income planning solutions their clients want for their transition out of full-time work. This begins with deeper conversations about the retirement period well in advance.

Tax time is a great time to broach those conversations. Tax Services Specialists will be sure to initiate them with clients and their financial advisors before bidding them farewell for another tax year.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services, and author of 52 books on family tax preparation and planning. 

Knowledge Bureau hosts regional Distinguished Advisor Workshops in major centres across Canada and an annual international event, the Distinguished Advisor Conference™.

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