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Wrestling with savings concerns

Wednesday February 25, 2015 Written by  Franklin Templeton Investments
Nearly nine in 10 working Canadians are worried about paying expenses in retirement.

Franklin Templeton Investments' 2015 Retirement Income Strategies and Expectations (RISE) survey found that 88 per cent of Canadians who haven't retired expressed concerns about paying expenses in retirement, with health care and lifestyle expenses most frequently cited. This concern appears to be well founded, as more than one-third of people who are 11 or more years into retirement (39 per cent) said their overall expenses have increased since they retired.

"Even if you do save enough to retire at 65, it can be hard to gauge how expenses will rise over the next decades, especially with the moving targets of health care expenses and inflation," said Philip Bensen, senior vice-president for Franklin Templeton Investments Corp. "This reinforces the importance of working with an investment advisor before and during retirement who can tailor a written retirement plan to your needs and goals, helping you prepare for the unknown."

Looking forward to retirement

Although a strong majority of Canadians who are currently saving for retirement (96 per cent) are looking forward to it, simply thinking about having enough money is causing people to worry.

The 2015 RISE survey, which surveyed a total of 6,023 individuals throughout Canada, the United States and the United Kingdom, found that more than two-thirds of Canadians (68 per cent) experience stress and anxiety when thinking about retirement savings and investments. That compares to 67 per cent of Americans and 60 per cent of UK respondents.

The role of stress and anxiety

Stress and anxiety levels are highest in the 35 to 54 age range, with roughly three-quarters of Canadian pre-retirees experiencing stress and anxiety when thinking about retirement savings and investments. While these levels certainly decrease as people head into retirement, 57 per cent of all retirees still experience stress and anxiety, most likely due to being fearful of or surprised by unexpected major expenses like health care.

For 38 per cent of Canadians aged 35 to 54, their top retirement concern is the fear of running out of money and roughly one-quarter of this age group is worried about health and medical issues. Yet 44 per cent of all retirees are most concerned about health and medical issues, with this concern peaking among retirees who are 11 or more years into retirement (49 per cent).

Concerned about inflation and interest rates

Retirees are also concerned about inflation and low interest rates, as it is their second most cited concern (15 per cent), whereas only five per cent of pre-retirees mentioned it.

"In their 30s, 40s and 50s, the day-to-day expenses of life, such as paying for a house, a car and children, often make it challenging to set aside enough for retirement," Bensen said. "The idea of catching up can be stressful and anxiety inducing, stopping people from taking even simple steps. An advisor can help with proper planning during the pre-retirement years, as well as breaking through this inertia, before retirement is on the horizon. Once retirement occurs, an advisor can help ensure their savings grow and last long enough, even if expenses increase due to health care and other costs."

Some of the best advice for retirement saving comes from retirees themselves, with over three-quarters of Canadians and Americans (78 per cent) recommending "saving early, saving often and saving consistently" to people who are not retired.

When Canadian pre-retirees were asked what they would ask those who are already retired, respondents had a variety of questions, including "when they should start saving" and "how much money should they save each year".

Although three-quarters of pre-retirees (73 per cent) are stressed and anxious when thinking about retirement savings and investments, 37 per cent of Canadian pre-retirees have not started saving for retirement, and even more surprising, one-quarter of pre-retirees aged 45 to 64 have not even started saving.

The survey also found differences among Canadian pre-retirees:

  • Seventy per cent of Canadian men have started saving versus 58 per cent of women.
  • Three-quarters of married Canadians have started saving versus only about half of single people or those living with a partner (52 per cent).
  • More than two in five residents of Atlantic Canada (44 per cent) and Quebec (43 per cent) have not started saving for retirement. This dropped to over one-quarter (28 per cent) in the Prairies.
  • Sixty-two per cent of residents in the Prairies and 61 per cent in Ontario are confident that real estate can be relied upon for expected income in retirement, whereas half of Atlantic Canadians (50 per cent) feel the same.
  • Three-quarters of residents in the Prairies and 70 per cent in Ontario are confident their personal investments can be relied upon for expected income in retirement, versus 58 per cent of those in Atlantic Canada.

The value of professional advice

The RISE survey found that Canadian pre-retirees who work with an advisor are nearly 50 percentage points more likely to be saving for retirement compared to those who have never worked with one (92 per cent versus 43 per cent).

Those who currently work with an advisor are more than twice as likely to have a written retirement income plan than those who don't work with one now but have in the past (52 per cent versus 22 per cent, respectively).

"Taking proactive measures is the best way to ease retirement concerns and bridge the gap between worries, expectations and reality. While retirement may seem far away and unpredictable, there are steps you can take to minimize risks and be prepared," said Michael Doshier, head of retirement marketing for Franklin Templeton Investments. "Getting advice and having a written plan can ease concerns and put you on the path to a successful retirement."

The survey was conducted online among a sample of 2,017 Canadians, 2,002 Americans and 2,004 UK respondents 18 and older. The survey was administered in all three countries from Jan. 8 to 22 by ORC International's Online CARAVAN.

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