“FROM”: An Issue for all Demographics

Beth Graddon

We have all heard of FOMO – the fear of missing out. But from a financial planning point of view there is an even more pressing fear that runs rampant with all generations, and in organizations that fund retirements these days. At Knowledge Bureau we call it "FROM: the Fear of Running Out of Money."

 In this special retirement-themed edition of KBR, we’ll provide you with  tools and resources to help Canadians think about how to live comfortably and happily in the future and have the impact they desire from their investing activities.

Running out of money or facing the inability to maintain a desired standard of living are familiar concerns for millennials and their wealthy boomer parents. And for millennials, the desire to make an impact on the world adds an additional layer to financial planning conversations. Studies show that for many Canadians, there’s a gap in understanding that could lead to insufficient retirement income planning and wealth sustainability to meet those defined goals. This is where tax and financial advisors can play an important role, in identifying and closing knowledge gaps and ensuring that their clients are thinking forward to a well-prepared future, for themselves and the social causes they care about.

Running out of money or the facing the inability to maintain a desired standard of living are familiar concerns for millennials and their wealthy boomer parents. And for millennials, the desire to make an impact on the world adds an additional layer to financial planning conversations. Studies show that for many Canadians, there’s a gap in understanding that could lead to insufficient retirement income planning and wealth sustainability to meet those defined goals.

Retirement planning is always a timely issue, but right now, it’s even more integral as more people than ever are hitting that milestone age, and this will continue over the next few decades. Statistics show that the population of Canadians aged 65 and over is increasing. In 1999, the senior demographic made up 12% of the Canadian population. In 2017 it rose to nearly 17%, and it’s projected to increase to 24% by 2036.

These demographic changes bring with them fiscal challenges for government and individuals alike. Programs like CPP, GIS, and OAS will have a larger population to support, and fewer Canadians in the workforce will be contributing taxes or contributions to pay into them. Statistics Canada estimates that for every senior age 65 plus, working age Canadians age 15 to 64 will drop in half from about 5 today to about 2.5 in the next 20 years. This is one of the largest projected decreases among the OECD countries.

Increasing concerns further is the fact that seniors’ debt load is at an all-time high. In 2016, the percentage of senior families with debt was 42%, 14% of senior families still hold mortgages, and consumer debt was at 37% in 2016. Addressing debt concerns and building wealth at all stages of life is essential.

An important part of this is helping clients increase their education and close the gaps in their knowledge that impact retirement planning. Some of these were outlined in a 2018 report from the Canadian Institute of Actuaries (CIA) entitled Retirement Consumption, Risk Perception and Planning Objectives. The results of their survey, which included participants age 50 to 80, outlined some misconceptions and concerns Canadians have about retirement:

• 92% expect they’ll die sooner than life expectancy estimates. Meaning, they’re likely not planning for their money to go as far as it will need to.
• Most don’t understand how inflation and economic changes over the long-term could affect the cost of living and the money they’ll need to have for retirement.
• 61% expect to have low liquid retirement assets. 10% of them anticipate the number will be less than $25K.
• The median retirement age for pre-retirees is increasing – now at 65 versus 60 for the already retired as of 2018 and preceding decades.

Read through the articles in this edition of KBR for important retirement facts and insights that will not only help you educate your clients, but also establish new plans and strategies to address the needs of the retired, and upcoming retirees. We’ve even provided you with some printable resources you can share with clients of various demographics and life stages to help them along the retirement planning journey.

Additional educational resources: Become a Retirement & Succession Services Specialist ; earn your MFA™ designation today.

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