A Retirement Planning Crisis in Canada
An Ipsos Reid study from December 2014 revealed that only 43% of Canadians polled have a financial plan. It further showed that 33% of those who claimed to have plans acknowledged that the plan was simply in their head.
If the poll results are close to being accurate fewer than 29% have any kind of a written financial plan.
There is another problem; the definition of a written financial plan is vague. It could be anything from monitoring the progress towards an arbitrary target to an 80 page behemoth that delves into every aspect of your personal finances.
It is likely that many ‘financial plans’ do not meet the standards of the Financial Planning Standards Council of Canada. Perhaps some could be deemed retirement plans while other ‘plans’ may not really qualify as any kind of plan.
A study completed at Texas Tech University in February 2016 examined 36 retirement software packages available to US users and found that only one-third of those provided sufficiently accurate information. If the same applies in Canada it could mean that fewer than 10% of Canadians have an acceptable retirement plan.
There are multiple reasons why this situation exists. Reasons, legitimate or not, may include:
- They feel that a plan is unnecessary
- They do not know where to turn in order to create retirement plan or have one created for them
- They are concerned that the cost may be prohibitive
- They worry that creating a plan with an advisor will result in pressure to purchase investment products or other services
- They fear the results may indicate a problem and prefer to ignore what the future may hold
- They are embarrassed by what they feel is a lack of knowledge and hesitate to confide in an advisor
- They prefer to keep their personal financial situation to themselves and do not feel comfortable sharing it with anyone – including an advisor
For those who do have a plan in place it is important to note that the shortcomings in some retirement plans can be numerous.
- They can fail to consider taxes, accurate integration of government benefits,and the discrepancy between measured inflation as measured by the government and the actual cost of living increases that may be experienced.
- They may not incorporate the unpredictability of investment returns which can have a dramatic impact on retirement savings.
- They may not provide users with suitable guidelines when it comes to life expectancies, incomes needed in retirement, rates of return, inflation, life expectancies and so on.
- They may not allow for changing income needs in retirement
- The reports may indicate ‘success achieved’ when in fact the probability of that success is low. Plans that only have a 50% chance of successfully meeting the stated retirement needs are routinely described as successful.
- Solutions for shortfalls may be non-existent or may not include increasing savings, delaying retirement, working part time in early retirement years or accepting a lower income in retirement.
Fortunately there are options available if you do not currently have any kind of plan in place.
- A Certified Financial Planner may be able to create a comprehensive plan for you. As mentioned, these will examine every aspect of your personal finances in minute detail and provide you with a report than may be as long as 80 pages in length. They can also be expensive with some costing $1500 or more. Before you spend that kind of money be sure to ask yourself if you are willing to digest that much information and implement the recommendations provided.
- A second solution is to begin by developing a retirement plan with enough detail and accuracy to be a legitimate guide for you to follow. The SmartPlanner from MoneyPages is just such a tool and it is inexpensive at less than $30 for an individual user. It is a good way to introduce yourself to the financial planning process and if you need more, you can always search out a Certified Financial Planner and have a comprehensive plan developed.
You can try the demo version of the SmartPlanner at no cost and you can view 2 free sample reports to determine if the SmartPlanner might meet your needs.
- The demo version is available here https://moneypages.ca/smart-planner/index
- A plan that illustrates a surplus at retirement is available here http://moneypages.ca/uploads/calculators/bill-brown-sample-plan.pdf?t=5744e6a023c76
- A plan that illustrates a shortfall at retirement and provides solutions to address that shortfall is available here http://moneypages.ca/uploads/calculators/john-jane-smith-sample-plan.pdf?t=5744e6d449aba