Our experts share their thoughts

Read what our experts think about various aspects of financial planning for retirement.

A man who is 35 years old today will live 6 years longer than his grandfather. Does this mean 6 more years of retirement? It's hard to say...

So should Mr. Smith save more or postpone retirement?

Let's compare Mr. Smith's situation to that of his grandfather
Mr. Smith's grandfather saved 3 000 $ a year for retirement, which he took at age 60. Since Mr. Smith should live 6 years longer, he needs to save 700 $ more, or 3 700 $ a year, to obtain the same retirement income as his grandfather.

But 700 $ is a lot of money!

Mr. Smith could also postpone his retirement by one year. This would accomplish two things:

  1. His retirement pension under the Québec Pension Plan would be greater.
  2. He would have an additional year to save for retirement.

By retiring at age 61, Mr. Smith could have the same income as his grandfather, for the same cost of 3 000 $ a year.

Life expectancy has increased markedly in the last 50 years. And this means the age at which you retire will have a major impact on the amounts you need to save.

Should personal savings be emphasized and employer pension plans ended? This question is on nearly everyone's lips these days, especially for members of a pension plan having financial problems. Yet the answer is clear: NO!

Nothing beats a pension plan offered by an employer!

It's unfortunate, but financial planning for retirement is often an afterthought. Most Quebeckers do not know how much they will need to save for retirement. Are they planning blind? Are they saving enough?

Contributing to a pension fund forces you to save systematically. And since the employer also makes contributions in most cases, the amount saved increases quickly. In addition, group savings

  • deliver better returns than personal savings
  • provide immediate tax benefits through payroll deductions
  • have preferential management fees.  

Understanding your pension plan is important but not necessarily easy.

This being said, you always need to know where your money's going. Take the time to review your statement of benefits. You could be in for a surprise! You may find that you need additional savings. For most of us, public plans do not provide enough to maintain your standard of living in retirement.

Everyone retires. So you may as well as take advantage of all the savings vehicles available to ensure you can retire comfortably.

You hear it over and over: saving early pays off! But does that really apply to retirement?

Yes, through the magic of compounding!

There are many examples of how compound interest works. The case of Stephanie and Fred provides a particularly persuasive one.

Stephanie saves 1 000 $ a year for 10 years from age 25. She stops saving at age 35 but lets interest compound on her capital. Her total investment is therefore 10 000 $.

Fred starts saving 1 000 $ a year for 25 years from age 40. His total investment is therefore 25 000 $.

Assuming a 5% rate of return, Stephanie will have accumulated 7 000 $ more than Fred at age 65. It's the magic of compounding in action! Amazing, no?

Financial planning for retirement is far from a priority for many. And if truth be told, it requires a great deal of effort. As any marketing executive will tell you, it's not a very "hot" topic! Combined with the low interest rates, it's no surprise that planning is given short shrift.

And yet, interest rates should not be a roadblock to saving. There's more than one way to save for retirement.

The message bears repeating: you do not need to save for retirement in an RRSP or TFSA. While it is true that any actuary involved in financial planning for retirement would prefer to see you invest in true retirement savings vehicles, you can choose to invest in real estate or equities. The important thing is that you save!

Looking for the winning formula? Every situation is unique! One thing's for sure, even if interest rates are low today, it is still a good idea to save up your capital. When interest rates bounce back, you'll be able to max out your investment income.

It's not always easy to find your way. Here are five tips to help you plan your retirement:

  1. Don't save blind. Plan regularly with SimulR or the tool of your choice, especially if your income or retirement plans change.
  2. Here's an example to illustrate my next tip. From age 25 to 35, Stephanie saves 1 000 $ a year. Fred starts saving at age 40 and saves the same annual amount until age 65. Stephanie therefore invested 10 000 $ and Fred 25 000 $. At age 65, Stephanie will still have 7 000 $ more than Fred through the effect of compounding. Amazing, no? You may already have guessed my second tip: save early!
  3. When it comes time to save for retirement, opt for registered investments. In the long term, registered investments such as RRSP or a TFSA deliver greater returns because of their tax benefits. In addition, it is less tempting to use the capital in an RRSP for purposes other than retirement, since withdrawals are taxable.
  4. If you are lucky enough to have a private pension plan, check what it will pay you in retirement. Make sure that amounts from your plan will be sufficient for you to maintain your standard of living. Otherwise, plan for additional savings. Read your statement of benefits carefully: it provides a wealth of information.
  5. Remember inflation! The increase in the Consumer Price Index must be taken into account in your retirement planning. For example, a litre of milk will cost much more in 15 years. Most financial planning tools take that into account. SimulR assumes a 2,5% increase.

If planning your retirement befuddles or intimidates you, specialists are there to help. You see a doctor if you feel sick, so why not see a financial planner for the cure to your financial worries?

In a 2010 report, the Canadian Task Force on Financial Literacy defined financial literacy as "having the knowledge, skills and confidence to make responsible financial decisions." Over the past ten years, Question Retraite, a non-profit organization whose purpose is to promote financial security in retirement, has carried out a number of surveys that paint a dark picture of Quebeckers' financial literacy. Let's take a look at the situation using the various aspects of the definition.


Quebeckers think they are well versed, but...

Knowledge is the cornerstone of financial literacy. And yet, it is difficult to incite individuals to acquire knowledge on financial planning for retirement. This is especially true in the case of young people for whom retirement still seems a distant dream. The challenge is even greater given that a major portion of the population consider themselves sufficiently informed about the topic. However, the following numbers belie that belief:

  • 14% of unretired individuals aged 25 or older are unable to name even a single potential source of retirement income. The source named most often, registered retirement savings plans (RRSPs), was mentioned by a mere 55% of respondents.
  • 45% of workers aged 25 to 44 have no idea how much they need to save to maintain their lifestyle in retirement.
  • only 34% of workers aged 40 or older are aware of the approximate annual income they could receive in retirement.

Quebeckers say they lack financial skills

Although Quebeckers think they know enough about financial planning for retirement, many do not feel they have the required skills. Only 44% of workers aged 25 or older believe that they could plan for retirement on their own. Less than half of those surveyed said that they had asked for advice.

Moreover, Quebeckers aged 25 or over are prepared to hand over responsibility for their financial security in retirement, as only half those surveyed consider themselves to be mainly responsible for it. According to 39%, the responsibility falls to the government and 11% were of the opinion that the burden was on the employer.


Parents are an important source of information

Knowledge and skill generally help build the third aspect of the definition of financial literacy: self-confidence. The surveys carried out, however, revealed another factor can have a major influence. The future financial behaviour of children is primarily influenced by their parents. Although specialists, advisors, the media and other sources of information do in fact guide people to make sound choices and decisions, children will follow their parents' lead when it comes to taking concrete steps toward financial planning. Despite this, parents remain hesitant to discuss finances with their children. One-fifth of workers aged 25 to 64 stated that their parents often discussed money issues or personal finances in their presence. However, for 21% of those polled, such conversations only occurred occasionally.

The situation does seem to be changing for the better: 43% of those in the 55 to 64 year age bracket stated that their parents never discussed the subject in their presence. That proportion dropped to 19% amongst 25 to 34 year olds.


Being a know-it-all can be risky

A significant number of Quebeckers are not conscious of the risks involved with certain behaviours and seem to be little informed of the legislation designed to protect the population.

More than 40% of workers aged 25 to 64 feel that making their own investments involves a slight to moderate degree of risk. Some people are capable of making investments unaided, of course. However, the beliefs concerning knowledge and skills noted above cast doubt on those capabilities.

If presented with guaranteed extraordinary investment yields, more than half of those polled would ask for more information on the offer and 1% would jump at the chance lest it disappear. While 1% may seem minor, as a percentage of nearly 4 million workers, it amounts to a potential 40 000 people being scammed.


Raising awareness about financial planning for retirement is warranted

It is still not easy to convince people to adopt a preventative approach when it comes to financial planning for retirement. The percentage of people with no retirement income objective has been stagnating at roughly 70% for the last 10 years. Less than 40% of workers aged 25 to 64 put savings first and spend the rest, whereas 58% do the opposite. Despite this, Quebeckers are optimistic and confident about their retirement.

Educational messages still have their place in Québec. The trick is getting Quebeckers to listen to them.

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