Our neighbors to the north are struggling as well. New research from Investors Group reveals that two-out-of-five pre-retirees (40 percent of working Canadians age 45-64) would not be able to cover their cost of living beyond five years if they had to unexpectedly retire tomorrow; including 16 percent who said less than one year.
While recent research has shown Canadians are generally well prepared for retirement, it also demonstrated that approximately two-thirds of pre-mature retirements are related to personal or family health issues.
“There are a variety of reasons someone may experience unexpected retirement—from personal illness to caring for a sick loved one,” says Tim Cottee, Vice President, Retiree Planning, of Investors Group. “While most of us plan for a smooth transition into retirement, we also need to be prepared to cope with an earlier than anticipated exit from work.”
Retirement income According to the Investors Group poll, more than a third of pre-retirees (36 percent) said they are worried that at their current pace of saving and investing, they would not be able to live the retirement lifestyle they pictured for themselves.
“When faced with sudden retirement, your previous retirement savings goals and payment plan fall by the wayside and a new strategy must be developed to reflect your current assets and opportunities to generate income,” says Cottee. “It is critical that those who are forced into an earlier-than-anticipated retirement adjust their financial plans to match the diminished number of employed years they had initially intended to ensure that they don’t run through their retirement income too quickly.”
When asked how they would manage the cost of living if forced to retire suddenly, the majority of survey respondents said they would turn to sources already earmarked for retirement including pensions and savings.
Protection beyond insurance While many Canadians will protect their loved ones by investing in life insurance, far fewer are looking at critical illness or long-term care insurance as part of their financial plan even though the chances of becoming seriously ill and surviving are far greater than sudden loss of life.
With today’s medical advances one is far more likely to fall critically ill and survive than to die suddenly. In Canada, the cardiovascular disease death rate has declined more than 75 percent since the 1950s, and cancer survival rates are increasing.
Yet only 22 percent of pre-retirees have critical illness insurance and long-term care insurance. While survival is the ultimate goal, the illness is still accompanied by medical costs and loss of income which can impact retirement savings and leave family members in a difficult situation if those suffering have not equipped themselves with the proper insurance.
“Insurance is not a sexy investment; the decision can be emotional and the idea of it brings about visions that conflict with the future we see for ourselves,” says Investors Group’s Cottee. “It is, however, protection against your future that can rid you of the ‘what if’ worries and allow you to live out the retirement you had planned if the unexpected strikes.”
Advice helps The survey revealed that 40 percent of Canadians are currently working with a financial advisor to develop a financial plan and appear to have a much firmer grasp on their retirement plans than those going at it alone. Those Canadians aged 45-plus working with an advisor to develop a plan are more likely than those going at it alone to say they feel more prepared than the average person for retirement (55% vs. 45%).
“Sudden retirement may happen to you and it could occur at a time when you least expect it. In all likelihood you won’t have the time to plan for it, save for it or prepare for it, said Cottee.” A financial advisor can not only help you plan for the unexpected, but can also work with you to adapt your financial plan in the event of an unanticipated retirement to ensure you are able to maximize what you have and make it last as long as you need it to.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
