Achieving a fulfilling retirement is an individual matter. It's also a matter of making financial and lifestyle choices that you will be comfortable with, said Peter Drake, who stepped down at the end of June as vice-president of retirement and economic research at Toronto-based Fidelity Investments Canada.
"Retirement is all about you. People talk about general rules -- how much to save, what your asset allocation should be and what your retirement income-replacement rate should be -- and I understand that people need guidelines," said Drake, commenting on the findings of a survey of 1,392 Canadians for the 2015 Fidelity Retirement Report.
In one of his last interviews before retiring, at age 71, Drake added: "Everybody is unique. What strikes me is that choices start with the discipline of saving, so you can afford to have choices. In order to make those choices, you have to give some thought to what your retirement is going to be. Odds are, those choices won't be the same as another person's."
Drake argued that during your working career -- and when you are raising a family and building connections to your community -- you may not be used to discerning many retirement choices. "People often say, when they're going though life's struggles, 'I wish I had the choices.' But if they haven't thought about it when they get there (retirement), they can find it difficult. You may have a lot more time (on your hands) than you might think."
That's why it's important to get advice, both financial and lifestyle. "It goes way beyond security selection. Now we are talking about integrating the two," said Drake. "There are more expensive retirements and less expensive retirements. That's not to say one is right and the other is wrong. But one is going to cost you a lot more money."
A former vice-president and deputy chief economist at Toronto-Dominion Bank who retired from the bank about a decade ago, Drake worked for a time as an independent consultant but found it unsatisfying. He then joined Fidelity Investments in 2006.
In working with advisors and their clients and helping them create strategies to meet changing needs, Drake noted that some retirees want to simplify their lives by downsizing their homes and having fewer material possessions. Conversely, others want to spend their savings and indulge whims they could not afford during their working careers. "It's not a question of one being right and the other is wrong. It's what works for you," said Drake, adding that the income-replacement rate in retirement varies from as high as 80% to as low as 40%.
"What matters is that it's going to be a function of what you would like to do, and what you're able to save for. That is a very individual thing," said Drake. Your choices, he added, "will depend on your decisions on consuming less and saving now, so that you can consume more down the road."
Economic theory argues that people are rational and understand that they must save for retirement and thus balance consumption in the present against consumption in the future. "But in reality, I don't think that happens," said Drake. "The problem is that shiny new car you want to buy in the next six months, or the trip you want to take down south next winter, seems better than doing the same thing 20 years down the road."
Here are some of the other key findings in Fidelity's 2015 survey:
- Sixty-two percent of pre-retirees expect to continue working in retirement, and 54% of working retirees do so for financial reasons. Significantly, 48% of retirees retired earlier than they had planned.
- More pre-retirees expect to carry debt into retirement. Forty-seven percent of those surveyed strongly or somewhat disagreed with the statement, "Worried about the amount of debt that I am carrying?" In contrast, only 34% of pre-retirees strongly or somewhat agreed with the statement. Thirty percent of pre-retirees carried between $5,000 and $100,000 in debt. A lower percentage of retirees, 25%, owed $5,000 to $100,000. While 53% of pre-retirees were debt-free, 57% of retirees had no debt.
- Continued employment is major factor for many retirees: 58% said they kept working to stay mentally and physically active, while 54% said they did so for financial reasons. Although working in retirement is on the gradual increase, Drake noted that planning to work in retirement is not good planning, because of the risks around personal health, workplace conditions and your own attitude about continuing to work.
- In responding to what was regarded as risks to your personal financial security, inflation came out on top, according to 58% of pre-retirees and 45% of retirees. Health care came second, as 53% of pre-retirees said there was a chance that out-of-pocket costs might drain their savings. Forty-two percent of retirees cited health-care costs as a potential worry.
Drake acknowledged that gaps exist between expectations and outcomes, such as the eight-percentage-point difference between those that expect to work in retirement, versus those that actually do. Significantly, however, Drake noted that labour-force participation rates for retirees have been rising since 2000.
From a financial perspective, some people cannot afford not to work. Some work so they can help grandchildren with education costs, for instance. Others simply feel more secure with a paycheque coming in.
On the non-financial side, Drake cited three factors: the need for a routine, the need to have a sense of accomplishment and the need for social structure or mental stimulus.
An aging population, combined with low birth rates, has had and will continue to have an impact on the so-called age-dependency ratio (the ratio of workers relative to retirees). "There are profound implications," said Drake, noting that governments have responded by making changes to the Canada Pension Plan and Old Age Security. "It's a very difficult problem for people to get their heads around. If you say to a crowd of people, 'This country will experience a shortage of workers,' they will give you funny looks. For the last umpteen years, we've had the exact opposite problem."
Drake urges people to try some retirement activities before retiring. "If you're thinking of moving to a smaller town, that's great. Then I suggest that you rent a place in the town you like -- in January. If you're happy, you're laughing. You need to try it out first."
As for his own retirement, Drake says he has given the subject a lot of thought. "I hadn't really done that, when I retired the first time," he recalls. "It began when I joined Fidelity and studied retirement. You need to think about it broadly -- which is why I've defined it as 'playing, working and learning,'" said Drake, who enjoys biking and kayaking and plans to learn another language. "I've thoroughly enjoyed this job. I discovered I had more fun working than not working. Now it's time for a change."
