Reaching the dream retirement
According to a new Fidelity Investments report, many Canadians are happy in retirement, but those with mortgages are finding things a bit more challenging.
By: ANNA SHARRATT
Date: July 7, 2016
Canadian retirees are generally a happy bunch, says a new report from Fidelity Investments Canada that looks at people’s perceptions before and after retiring.
Overall, 41 per cent of people surveyed say that their transition to retirement has been easier than expected, and they are now enjoying activities like golf and socializing with friends.
The report also found that retirees who use financial advisors are happier than ones who don’t. About 44 per cent of respondents who use an advisor said the transition to retirement was easier than expected, versus only 37 per cent among those who handle their own finances.
“There’s a pretty big delta between those who use a financial advisor and those who don’t,” says Peter Bowen, Vice-President, Tax and Retirement Research, at Fidelity Canada.
One data point that advisors do need to pay closer attention to, though, concerns retirees and mortgages.
According to the “Retirement 20/20” report (which surveyed 1,932 Canadians with a median age of 57), 58 per cent of pre-retirees and 31 per cent of retirees still have a mortgage on their home.
As well, 25 per cent of retirees surveyed said they found the transition into retirement more difficult than they planned – possibly because of those ongoing home payments.
Having that kind of debt in retirement is impacting some people’s plans. The report found that 47 per cent of pre-retirees believe they will be travelling when they retire, yet by retirement that number drops to 41 per cent.
The change can be chalked up to having lower retirement savings, partly due to ongoing mortgage payments that many had expected to be over and done with.
“Travelling is expensive,” says Mr. Bowen. “That’s the reality people need to be considering when they’re talking about retirement.”
Fortunately, advisors can iron out many of these issues by creating a financial plan well before their clients leave the working world, says Mr. Bowen.
From a planning perspective, advisors and clients need to consider the cost of home ownership and how it factors into the larger retirement plan. They need to help clients examine all of their investments, such as what’s in their RRSP and TFSA, in conjunction with those ongoing payments.
“Ideally, we wouldn’t have a mortgage going into retirement, but it seems to be the new reality,” he says.
In some cases, still having a mortgage may make sense. For instance, a retiree could have a rental property, or maybe they’ve mortgaged their home in order to invest.
As well, if the client has a mortgage with an ultra-low interest rate, it could be wise to invest in an RRSP instead of aggressively paying off the housing debt. “That’s because the tax rate will drop significantly as they move into retirement, and [clients] can pull money out of the RRSP at a lower tax rate and use those funds to pay down the mortgage at that time,” he says.
In any case, advisors must sit down with clients well in advance of retirement to alleviate pre-retirement stress and prepare them for the retirement their finances allow. Have them ask themselves: “What am I actually going to do – how am I going to spend those eight hours a day?”
“Help your client have that concrete plan,” Mr. Bowen advises. “Retirement is much more than just finances.”
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