Why retirement will be different for the next generation of Canadian retirees

 

If you look back about 40 years, nearly one half of Canadian workers had an employee pension plan. For those set to retire in the next 10-15 years, again, about half are covered. However, for the cohort of 25-44 year-olds the pension situation looks a lot different. Only 40% of 35-44 year-olds, and a mere 27% of 25-34 year-olds have employee pension plans (1 ). Pension coverage might improve as this group ages, but they’re unlikely to receive the same level of coverage as their parents and grandparents.

 

Forging their own path to retirement

 

With a smaller population than the preceding boomers, other potential challenges for this group include reduced government pensions or services, and/or paying more in taxes to keep these benefits. The future will likely require this group to fund most of their own retirement. While this will be a challenge, fortunately for Canadians, there are more ways to save and generate income than ever before, and several benefits to building your own retirement that are not provided by guaranteed pension plans.

 

More ways to save

 

Registered Retirement Savings Plans (RRSPs) are now complemented by Tax-Free Savings Accounts (TFSAs) – a savings vehicle previous generations did not have. Both offer distinct tax-benefits, and diligently saving into these two accounts alone could prove a well-funded retirement. Individual Pension Plans (IPP) are another way for the growing ranks of business owners and self-employed to tax-efficiently fund their own pensions.

 

More retirement income opportunities

 

Most investors are well aware of GICs, bonds and dividend-paying stocks, but there several other ways to generate retirement income – some of which have evolved or are relatively new to the investment landscape. Preferred shares, bond ladders, Exchange-Traded Funds and tax-deferred solutions can all be positioned within a portfolio to diversify or boost retirement income. Insurance solutions, such as segregated funds and annuities can offer guaranteed income for life, while certain life insurance policies can be set up to generate tax-exempt investment income.

 

Gain control of your assets

 

While there’s a lot of comfort with the certainty of a guaranteed pension, if you diligently save and are able to fund a comfortable retirement on your own, you gain control of your income and assets.

 

Tax planning matters more than ever

 

In addition to RRSPs and TFSAs, IPPs, non-registered investments, and insurance solutions could all be a part of your portfolio and will need to be managed tax-efficiently. Asset allocation, income planning, and income-splitting are among the other considerations that can help you effectively manage taxes before and during retirement.

 

Advice can help navigate today’s environment

 

Many 25 to 44-year-olds might not have the benefit of family advice on the ins and outs of saving for retirement. Further, they’re living in a constantly evolving investment and taxation environment that’s quite different than their parents.

 

 

( 1.) Source: Statscan. Pensions plan by age and gender: http:// www.statcan.gc.ca/pub/75-006-x/2014001/article/14120- eng.htm

Labour force by gender: http://www.statcan.gc.ca/pub/11- 630-x/11-630-x2015009-eng.htm

Population by age and gender http://www.statcan.gc.ca/ tables-tableaux/sum-som/l01/cst01/demo10a-eng.htm