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It's Not Your Grandparent's Retirement Anymore

By: Ted Rechtshaffen CFP

The year was 1955. Working people (mostly men) often started as teenagers, and retired well over 40 years later at 65 assuming they were healthy enough to reach that age in working condition. When they retired, they spent four years as a senior citizen in declining health, and passed away at age 69. Retirement planning was not their responsibility. Money for retirement was usually taken care of by the company pension, and their wife would continue to receive a good percentage of this pension until she passed away.

Today, working people (men and women) often start their careers after university (and sometimes after a year to 'find themselves') at around 24. After a career with a few employers and a period as a consultant, they retire at 58, after 34 years (men might spend 32 years fully employed, and women more like 24 years). When they retire, they spend the next 28 years living life. Much of this time is spent in good health, helping their children and grandchildren financially. They spend their mid-'80's in declining health, passing away at age 86.

Retirement planning is their responsibility. Even if they worked at a company with a defined benefit pension plan (where you receive a set amount each month), they probably didn't stay long enough to qualify. There is the Canada Pension Plan and Old Age Security, but the rest of their retirement lifestyle is largely dependent on the planning and saving they did between the ages of 24 and 58.

Let's review the basics of these hypothetical but realistic scenarios:

There are a lot of older companies desperately trying to figure out how they are going to continue to fund their retirement pension plans. Many individuals are doing the same thing and if they're not, they should be.

How did this change happen?

While all change happens over time, it is often influenced by a complicated mix of factors. Here is a short overview:

1. Companies require a better educated work force so employees start much later.
2. The public markets don't allow companies to carry much "excess baggage" for very long, forcing regular layoffs during tougher business cycles.
3. Employees want and/or expect more from their careers and often find that they need to leave their employer to find it.
4. Along with the loss of loyalty, most people don't want to work until they die. While today this would allow people to still work into their 70s, most want to be sure of a healthy retirement and look to retire as early as 55.
5. Life expectancy has grown significantly (in the U.S. it was 49 years in 1900, and 77 years in 2000). While this has extended people's healthy years, it has also extended the number of years where people require greater assistance to live.

You need to make sure that your assumptions about retirement are based on the future reality as opposed to what you have seen from your parents and grandparents. According to the World Health Organization, for average 60 year old male Canadians, they will have 16 healthy years left, and 60 year old females will have 19 healthy years remaining.

RRSPs need to be started as early as possible, and in most cases need to be invested for long-term growth (unless retirement is around the corner or you are planning to take money out for a Home Buyers Plan or Lifelong Learning Plan). If your company provides a Group RSP plan with diversified investment options and a good matching program, take advantage as much as possible.

Living insurance such as Critical Illness and possibly Long-Term Care needs to be reviewed as a crucial part of a financial plan. Your Disability insurance through work will not likely meet your needs.

And find out where you stand with your goals and your timelines. Talk to a real financial planner (not a mutual fund salesman) who will provide you with answers about your potential retirement age, amount you need to be saving, tax and estate planning issues.

If the thought of making 32 years of work cover 28 years of retirement sounds daunting, it should. But with a solid plan, your dreams and goals can often turn into a reality.