When do you make the life decision to walk across the dance floor of life and extend your hand to the retirement plan you have chosen and hope to embrace?
The decision on when to retire begins before retirement. Second guessing if you made the correct timing decision may carry on well into retirement. Some of you may change your minds either for financial or lifestyle reasons. You may even choose to return to work.
McKinsey & Co. research sheds some light on this important milestone in life. The percentage of retired Canadians will double from 11 per cent in 1990 to 22 per cent by the year 2030. The duration of retirement is also increasing.
People are entering the workforce one year later and retiring two years earlier. Based on this information, the number of years in retirement has grown by three years.
In Canada, life expectancy as well over the last three decades, has grown by three years. Add in the shorter time spent in the work force to an extended life expectancy and retirement now is six years longer.
That is fine if you have an indexed pension, which is unfairly limited primarily to government employees. For the rest of us “pay as you play” workers planning for retirement, we are faced with the daunting question of whether we will outlive our capital.
Back to the original question. When is the right time to embrace retirement? The financial goal for retirement is to maintain your desired lifestyle. How can you maintain the same quality of life?
The McKinsey report provides some good and bad news. On the positive side 83 per cent of Canadians are on track to retire and maintain their desired standard of living.
The figure is not good for those without a company pension in the mid-to-high income group. Only 63 per cent without a workplace pension will be comfortable during retirement.
By contrast the number of mid-to-high income group workers with a workplace pension is 91 per cent. Again, these are primarily workers who are directly or indirectly employed by government.
The report said that 63 per cent of people worry about retirement, so the key question is how do you know if your retirement will be financially stable?
Fabrice Morin a principal with McKinsey said “Those with who have built a financial plan know, but those who do not have a financial plan usually don’t know how much they will have in retirement.”
Some will retire comfortably and others will not. The most at risk group are those who are without a pension and have saved little. Over half of that group has a retirement problem.
The next largest group at risk are those like many Oakville residents who have enjoyed an above average lifestyle from their good earning power. That is sustainable during the working years with regular employment income.
Without a pension, however, you will not able to continue this lifestyle when the pay cheque stops. Life has been good but the good life will evaporate during the final decades of your life.
Our recommendation is to follow what works based on the evidence of the McKinsey report. What are the ingredients for success that have helped those most prepared for retirement?
First, have a retirement plan and second, save now so you will be able to spend in retirement. Those two actions are what the research says should be the building blocks to a financially sound retirement.
The decision on when to retire is one of the most important financial decisions you will make. We encourage you to invest the time and effort in planning and then enjoying your many years after work has stopped.
Don’t find yourself stuck in the middle of the dance floor of life wondering if you need to go back to work.
When should you embrace the journey of retirement? Hello retirement…shall we dance?
