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The Canadian Money Roadmap
Exploring Retirement: Perceptions, Priorities, and Planning with Michelle Munro
How do perceptions, priorities, and goals shape retirement outlook for pre-retirees and retirees? And how does a written financial plan play into the picture? I am thrilled to dive into these intriguing questions with our special guest, Michelle Munro, Director of Tax and Retirement Research at Fidelity Investments. Michelle brings to our discussion fascinating insights from Fidelity's Retirement Report, shedding light on the significance of having a sound financial plan and how it is strongly associated with a positive retirement perspective. We also touch upon the range of activities that retirees look forward to, with travel taking the top spot.
Canada's growing trend of immigration has undeniably influenced retirement savings and plans. We navigate through this complex landscape, examining how immigration and culture impact the savings goals of both Canadians who were born here and Canadians who were born elsewhere. Interestingly, Canadians born in other countries show higher savings targets across the board, with an emphasis on multi-generational plans for their children and elderly parents. We also dissect the role of external factors like macroeconomic events on retirement goals and attitudes, alongside the differences for those with defined benefit plans, those employed, or self-employed.
Have you ever wondered why working in retirement is a popular choice? We delve into this phenomenon, revealing that it's not just about the money. Staying active and mentally engaged are key motivating factors. Stressing the importance of thorough financial planning, we discuss how many retirees are working to thrive rather than to survive. To wrap up, we discuss potential changes that could affect retirement, such as RIF minimums, and how the Fidelity Retirement Report can provide invaluable insight into retirement goals of Canadians. Join us for an episode packed with valuable insights and advice!
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Hello and welcome back to the Canadian Money Roadmap Podcast. I'm your host, evan Neufeld. On today's episode, I am pleased to be joined by Michelle Monroe. Michelle is the Director of Tax and Retirement Research at Fidelity Investments. Every year, fidelity puts out a report on retirement and we're going to dissect some of the things that came out of that. So they look at pre-retirees and people that are already retired, things that they're thinking about planning for, worried about all sorts of different things. Really great episode here. I hope you'll enjoy it. Okay, michelle, thank you so much for joining me on the Canadian Money Roadmap Podcast.
Speaker 2:It's good to be here. Thanks for having me, Evan.
Speaker 1:Michelle, you're at Fidelity Investments in the role of Tax and Retirement Research. The Director of Tax and Retirement Research. I should be specific there, and every year you folks put out a great report on retirement. Retirement is a big concept and a lot of ideas surrounding it, so perhaps can you just tell me a little bit about the Fidelity Retirement Report.
Speaker 2:Okay, so we've been doing the retirement survey for almost 20 years now. It's one of the longest surveys in the industry where we focus on pre-retirees who are 45 and older as well as retirees. And it's Canadian. We're looking at Canadians coast to coast so we can really get the insights of perceptions, how people are thinking about planning for and living in retirement. And we pull the surveys almost 2000. Well, it's a lot of questions and so we pull all of those questions into a report so really help Canadians understand that retirement journey. There's something for everybody in it.
Speaker 1:So you mentioned both pre-retirees and retirees, which I think is pretty unique as far as retirement research goes. One would probably expect it's like, well, let's just talk to retired people. But when we look at the feelings, priorities and goals of both pre-retirees and retirees, what are some standout findings between these groups of people in this year's report, and maybe even in years past, if you remember some interesting data points.
Speaker 2:Yeah, it's when you look at the, what are just general perceptions on retirement. And you know, evan, we are living sort of through unprecedented times. It's like three and a half years ago the pandemic hit, topped everything topsy-turvy and that has pretty much stabilized, touched wood. But you know, as things sort of continue and the economy was happening, with inflation, with interest rates, and then outside of the economy what's happening? Like there's wildfires and floods around the world, there seems like a lot going on. So right off the bat we really wanted to understand well, how are what's people's outlook when we're living through these turbulent times? What is their outlook on retirement? So we asked both retirees, we asked everyone in the survey what's your outlook on retirement, positive or negative? And it was really interesting and we've been asking this question for a long time. But when we looked at the retiree group for the last 10 years or so, it was really consistently 80, 85% said positive, yeah, positive about retirement and it's steady at a consistency there. And when we bifurcated that and looked at that pre-retiree group, well, we can see it sort of fluctuates in what's going down and it's also declining. So it was 62% were saying well, only 62% said that they felt positive, which was considerably less than the retiree group. So when we looked at, okay, well, in that pre-retiree group who are feeling less positive than the retiree group, well, what's the distinguishing factor there? And when we looked at those pre-retirees who had a written financial plan, those who said they felt positive jumped up to 85% and again consistency in years past, whereas it was the pre-retirees without a written plan who were bringing that average down at 55%. Only 55% said it was positive and that was a declining trend. So really, when you looked at it, there was a connection between feeling positive about retirement and having a written financial plan and as we're going through turbulent times, it really highlights the importance of having that written financial plan.
Speaker 1:How did you determine who has a financial plan? Was that self-reported? Because you know, I speak with a lot of DIY investors and they have perhaps their own version of a written retirement plan and that might be on the back of a napkin saying I'm going to retire at 65 and that's a written financial plan. You know what I mean. And so how do you select from there to get good data on that?
Speaker 2:It is self-reported. So about 30% of people said that they had a written financial plan and then we actually found that those and we don't audit that written plan but I know that I work with a lot of financial advisors and the rigor and discipline that goes into creating those plans. They're really, really well done.
Speaker 1:So I remember some past years. Just for anyone listening here, the report kind of focuses on different things every year because you said, there's many, many questions in different directions. You can take the data so you can't include everything in the report, but in previous years I remember seeing some data on how people plan to spend their time in retirement versus what retirees are actually spending their time on. Do you remember this? Maybe that was even last year's report, but do you have any insights on things like that in terms of just like the practicality of what people want to do in retirement?
Speaker 2:So, yes, we do ask this question every year and consistently, except during that 2020 first year of the pandemic. But you can guess what was? The number one response is people want to travel in retirement and as well as spend time with family and friends, sports, entertainment, volunteering and we also see people who retire from their primary career and then choose to work and we can get into different reasons, but work in retirement as well but the number one answer is really travel. A couple things I could take out of that is that people, when they think about retirement, they do think about well, I like to travel but they're also really focused on the first I'm going to say third of retirement, where they are doing one of those sort of fun things, where they're traveling and enjoying all these exciting things, and then they slow down and people don't really focus on, like the last third of retirement, those really slowing down years. And I think, when it comes to retirement planning, thinking about it as a much it is it could last decades and thinking about that retirement vision over a long period of time.
Speaker 1:That's a really good point because you know people's vision for retirement focuses in on those early things, like I'm gonna go to France every year and then I'm gonna go to the World Cup every four. Whatever the people wanna do, or whatever the case is, it's like do you see your grandparents doing that? They're not doing that.
Speaker 2:They really do focus on the first third of retirement and it is fun, and as we should, but also extend that focus beyond those early years.
Speaker 1:Interesting, okay. So I remember seeing some of those differences of like okay, this is how people are reporting spending their time in retirement. But because the retiree group that you surveyed is I've heard this language before, I don't know if I might have stolen it from you, even Michelle, from some webinars or something but the go-go years, the slow go years and then the no-go years of retirement, so, like, the retiree group is a subset of each of those, probably as well. So I was wondering if perhaps there is a you know the people that wanna do this as their retirement goal and then people in retirement aren't actually doing it. I wonder if that was a change of just a result of retiring, or even like a generational thing. Do you see differences in generations in terms of what they've prioritized in retirement?
Speaker 2:Because it is more of an evolution and we look at it year after year and yeah, but there is there's a difference in the generationals and I think that as and the baby boomers, they're just mixing everything up, but the oldest of the baby boomers are now sort of hitting that 70-ish rage and you know, when one turns 71, you have to start drawing down, convert that RSP and start drawing down that riff, so what we call the mandatory rifters. And there is, there's a change here. We want to stay focused on the activities and so that segment, they are doing more of those fun, fun, travel, sports, and doing it for longer than previous generations did.
Speaker 1:Interesting. So there's something in this year's report that you might have included in years past. I'm just not remembering, but I thought it was kind of interesting Looking at some survey results from people that were born in Canada versus Canadians that are first generation Canadians and some of the things that they prioritize there. Can you give me any sort of insights that you took away from these two groups of people?
Speaker 2:Yes, so in the reason we focus we've asked the questions before in the report but the reason we focused and putting it into the report the way that we did and you see in the media is that we're expecting that immigration is a growing trend within Canada. So we wanted to understand this segment of society a little bit differently. And first of all, we're looking at, well, the pathway of immigration, and 60, 62, 60, 67% are the skilled worker pathway, so they're younger, educated degrees, have lots of work experience and then. So the next piece of that is our understanding. Well, what are the things that people who are born in Canada versus those born outside of Canada? How are their savings goals? The same, yet different. And overall, what are savings goals? Well, number one for those both born inside of Canada and outside of Canada is retirement, and then we're looking at, then the list goes down to between education for children, taking care of a loved one, elderly parent, a major purchase, I think, in vacations, cars, as well as a new home. And then, when we split those between those who were born in Canada and those born outside of Canada, what we really found is that savings goals in general for those born outside of Canada were much higher in every category, those born outside of Canada were saving and those were their savings goals. And then the second piece of that is that, well, even more so, so exacerbated those multi-generational savings goals savings for children, savings for an elderly parent, multi-generational, those born outside of Canada, even higher rank those. So, I think, when we're thinking about savings, investing those born outside of Canada, well, not used to things that some of us we've heard about take it for granted, like using RSP, a TFSA, non-registered account, what's the impact of that? But really, as it is a generalization, this group are very oriented towards saving and investing. So, and as a community, how do we help them do that?
Speaker 1:Yeah, I thought that was very interesting, in particular those ones about the multi-generational Goals. Is, the data is pretty stark, you know, saving for your children and the elderly parents in particular, and I can even see it in my, my own community, my immediate neighbors on either side. They are First and second generation Canadians, but both of them are bringing their parents home or to their new home here in Canada to live with them, and so, yeah, that takes a lot of additional savings and, anyways, there's a lot that that comes from that. So I just thought that was interesting data to include there.
Speaker 2:Also I'm gonna add in that I like statistics, but when we ask how much money do you think you'll need in retirements, Like how much annual income do you?
Speaker 1:need a million dollar. Question yes.
Speaker 2:Well, not how much savings do you need, but how much income do you need. And then the income comes from different sources. Those born inside Canada said about 62 62 thousand dollars. Those born outside of Canada said I'm gonna need like 72 thousand dollars. So it's the Understanding that for all of these financial Obligations I think that's how to describe it there's the things that they want to do. They understand that they need to have more income in retirement, which is also bringing it back to all of those savings schools and the focus on savings and investing.
Speaker 1:Interesting. So folks that are born outside of Canada and moving here. They're shaped largely by the worldview of the place that they come from. In particular, there's also us here born in Canada, but there are other external factors that affect how people feel and behave. So do you find that there's differences in retirement goals and attitudes based on, say, macroeconomic events? So, of course, what we're living through right now, with inflation and interest rates going up and things like that, even recent stock market performance, do you, can you see your data as it relates to any of these external factors? Because you've got 20 years of data here. We've seen a lot in the last 20 years.
Speaker 2:We have seen a lot in the last 20 years. So one of the things is, when you talk about the timing of retirement, just give you some background. Back in the 70s and whatnot, the average age of retirement was about 65 and the average age of retirement was steadily declining Until about the 90s where it bottomed out about age 60 62 and it covered there until 2008 2009, which was the global financial crisis. There's an economic downturn, people have had a long memory and what we've seen is a steady increase in that age of retirement and again we're at about age 65 again. So we were at 65 in the 70s, went down in the 90s to about 2008, to the low 60s and steadily increasing to about age 65 again. So then, when we ask, what pre retirees, what is your average age of retirement you're expecting there? Well, what we again we're seeing a steady increase and this is From here is that there's more and more people who report back to us and say, well, I'm looking at that average age of retirement. Well, I think I'm going to delay that like to 65 and later, and some of the ways we also look at this as well People who have a defined benefit plan in the pro and so Predominantly there on the, the public sector, more likely to retire earlier, those in an employee In the workplace, such as myself I work at Fidelity a little bit later, so getting closer to the round that 65 average and self-employed individuals are more likely to say well After 65 and that group is sort of like well, never gonna turn, I'm gonna keep on working forever, but even like what? So we talk about averages, but when you get into some of the nuances there about the differences of the type of the employees or worker, there's a, there's a, there's a broad category within there. So what are some?
Speaker 1:of the, the specific things that keep people from retiring. You kind of alluded to a few of those for each of those different groups, but the report includes some sections on this, so maybe I'll let you take it from there. But yeah, there's a number of factors that are keeping people from retiring, so we asked pre retirees.
Speaker 2:What's holding you back from retiring when you would like to please? You ask somebody well, when are you planning on retiring? Sort of, on average age 65?, maybe a little earlier, but people typically have an age in their mind. So what yesterday? So, what's holding you back from retiring when you want to? Well, the number one answer and this has been consistent since 2020, actually, so people knew even before it was really highlighted in the media Was the rising cost of living. The number two and, more historically, the number one answer was well, I'm really concerned, I haven't saved enough. And then the other thing is well, they're worried about their debt level, rising interest rates, not sure what going to do in retirement. As an aside, that impacts both sexes, but more predominantly male, who their identity is tied up to their work. And so if I don't work, then who am I? What do I do? So anyway? So those are the types of things where what's holding you back and where we see a real trend is those are saying well, I'm really concerned about that rising cost of living and I think I'm going to delay my retirement a few more years. Another trend that we saw there is that, while those earlier pre-retirees they're kind of like oh yeah, it was more vague for the later retirees, so those who are getting closer to age 65 were more likely to be saying that rising cost of living is a real concern, and sometimes I think, well, you know the media every day. There's like something else in there about inflation is it going to go up? Is it going to go down? Why? What are those driving factors? And that, I think, has a really big impact on the timing of retirement, of how people are behaving, and I think that bringing it back to those who have a written financial plan, who's that's been built to withstand these macroeconomic factors, can help pre-retirees retire when they want to, and also because you have this tangible plan that the retiring with confidence as well.
Speaker 1:Right, you mentioned the folks that it was traditionally number one of the people that haven't, or they feel at least they haven't saved enough or they're concerned that they haven't saved enough.
Speaker 2:I like how you see that feel that they haven't saved enough because they may have oh Well, continue. Sorry.
Speaker 1:Totally, yeah, yeah, I see both ends of that. I also see people that feel like they're ready to go and it's like oh boy maybe not. But 58% is the number of people in the survey that reported that as a factor for not retiring when they'd like. So later on I'm scrolling through the report here. There was some questions about how people are investing and the statement was here. I'm just going to read it and it says I'm not going to invest in anything but very safe investments for a long time because of everything that has happened in the markets in the last little while, and the all respondents average here was 50%. So how do you square that with people like, okay, well, I haven't saved enough, and these people have been investors for probably a long time and they know that the performance of the investments carry the day in terms of their ability to make it to the end. But then people are saying this risk stuff, it's a little bit out of here. So, anyways, how do you maybe just talk about the idea of safe investing and how people in the report have this conflicting idea of not having enough to retire but they're also less willing to invest in riskier assets?
Speaker 2:And it's an ongoing conversation that people have, or concerns that people have, and having those working with really a professional and not making sort of knee-jerk reactions. There's a saying that it's time in the market not trying to time the market is a winning strategy. And staying invested through the market volatility, having that long-term focus and we see that again and again that is really the winning strategy and not making these knee-jerk reactions to market volatility. And some of it comes to working with a financial advisor such as yourself, understanding what you're investing in, having a long-term focus, having that reasonable voice, a professional who does this every day, day in, day out, knows seeing it again and again. And that reassurance that it's a winning strategy again and again that markets have recovered. They do recover and we see it again and again and there's no reason to expect that it's not going to be happening again. And I think it's a bit of an easier conversation with pre-retirees, but even for retirees, average age of retirement is 65. Well, average life expectancy is about 85, a little less for men, a little bit longer for women, but you're looking at 20 years average life expectancy and it could be like a decade longer than that or more. So still having that long-term investment focus, even for that retiree group. I think it was a generation ago or more. I'm thinking like my grandmother, who had a much shorter life expectancy and were in those super safe GICs Canadian savings bonds which you can't even buy anymore sort of that mentality. That same strategy isn't a winning strategy for your retiree today. And to help with those conversations and helping people understand that, I think it's really a value-add service that you provide.
Speaker 1:So I don't believe it was in this year's report as much, and you mentioned it previously before but talking about people who decide to keep working in retirement. So how is some people's self-report that they're still working in retirement? So what defines maybe we should have talked about this first what defines a retiree in that case, and what can we learn from people who keep working by choice versus those who perhaps are working out of necessity?
Speaker 2:So working in retirement is a growing trend, and so let's look at it a couple different ways. So, first of all, what does it mean to be working in retirement? So, someone with self-report as I am a retiree and how we help them define that is well, you retired from your primary career, your primary profession, and then we go on. Okay, so working in retirement. Well, what does that mean? And the number one reasons behind that is to stay active, to stay busy, to stay mentally engaged. Further down the list are for financial reasons, and then we dug deeper into that. Well, what do financial reasons really mean to that individual? And again, the trend there was more strongly to well, so it would allow me to take a nicer trip, an additional trip, going back to those vacations, a fancier lifestyle than they might have had, like a more dinner out, easier dinner out or easier lifestyle. I think that's an easier, better way to say it, as opposed to putting food on the table Like the financial reasons are really to thrive, not to survive. However, there is a component of people who do need to work in retirement to survive, and really it comes back to well, you want to have choices in your retirement, and if that choice is to work in retirement. You want it to be a choice, not a necessity, and it comes from. How do you have that choice? Well, it's careful and sometimes it could seem small but very consequential choices of saving and investing the years leading up to retirement. And so starting early I think that gets said again and again so many different ways but even a small amount early in life, in your career, staying invested, can have a really big impact on those retirement years.
Speaker 1:I thought that was interesting too. I would have thought that there would be more people that are working out of necessity. Perhaps this is media bias towards fear and that kind of things like well, everybody's going to be living off cat food. It's like well, I don't know if the data necessarily supports that.
Speaker 2:By and large, our data supported that. It is for its reasons to thrive and there is certainly a component it is to survive, but it's by and large to thrive.
Speaker 1:I like that language thrive and survive, yeah, okay, so we've talked about having a financial plan, working with a professional and then, for listeners who are perhaps new here, I've got a couple episodes on questions to ask a potential professional to find one that suits your needs and personality, style and all that kind of stuff. But beyond those things, did you have any data on some other factors that maybe increase one's confidence in retirement and maybe one's finances in general?
Speaker 2:Well, coming back to the written plan and thinking about well, what are we looking for to put into that written plan? And it comes back to the what is that vision for retirement? What are you looking to do? And I'll use the number one answer is just travel. What does travel mean to you? Is it like luxury, five star trips around the world, or is it something a little bit more economical? And then trying to figure out some numbers that go along with that as well as well, when you're looking at the finances because those are some of the bigger expenditures, what are the running costs, the expenses for the necessities for a household, and then building around that. Well, so we're creating that vision, then building around that. Well, how much do I need to be able to fund that? And what are all those different sources of income in retirement? I didn't have government sources CPP, old age security there could be employer thinking, pension plans, defined benefit, defined contribution, rsp, personal savings and where, where are all these sources of income going to come from? Boy, I should also include, because we're talking about that earlier working, are you working in retirement? And you made a joke earlier. But how much personal savings do I need? Is that million dollars enough, is it too much? And then there's no one right answer, because it really relates to what is your vision going to look like? And then we'll. We have our savings. Well, how much is in RSPs? When do we take those RSPs, convert them into RIFs and what are other savings? What does that other income look like? And the timing of all of that? It was very layered and there's a lot. We could spend a whole 45 minutes just talking about that. So there's a lot there. So I think it comes back to having that written plan and now we're talking about the components of that plan that helps people retire really with confidence.
Speaker 1:Yeah, I can see that perhaps it's anecdotal, just in my own experience here with my own clients. But understanding all of your sources of income in retirement, very few people do that and I had a survey on the podcast here and the vast majority of people do not have a good understanding of all of their sources of income in retirement.
Speaker 2:Because when you're more complex, right Cause I work at Fidelity, I get paid and the paycheck looks pretty much the same. And then in retirement, you have all these different sources and some CPP, old age security, their index for inflation, Others are not or may not be. So how, how do you in that, if that's one of our major concerns, well, how do you mitigate that risk and how do you counteract it and how do you deal with that?
Speaker 1:Yeah, Like RIF Minimums and how that changes every year, or LF Maximums, you know it's it gets complicated. So, yeah, having a plan is is really important. We're getting close to the end here, but I had a couple other questions that I thought I'd throw your way here. Just in general, what kind of changes do you see on the horizon that could potentially impact retirement going forward?
Speaker 2:Oh well, you were. You just touched upon RIF Minimums and let's, just for for the audience, talk a little bit about because there's so much focus on the accumulation is that while we're saving and RRSP registered retirement savings plan is one of the most common forms people are familiar with. So in retirement people have a choice of what they call maturing that RRSP. They could take the RRSP in cash very few people do that convert it into an annuity, which is an insurance product, but by and large most people convert their RRSP into a RIF registered retirement income fund and, depending on your age, there's a percentage from that RIF. It's called a mandatory withdrawal rate that needs to be withdrawn from that RIF and it varies from age 65, which is 4%, and that percentage gradually increases up to age 90, and it's 20% at that point and it's based on the percentage of the fair market value at the December, at the year end, and that's what needs to be withdrawn. So and well, people are living longer than ever before. That average life expectancy is increasing, interest rates are changing, the inflation is changing. So the Department of Finance said that they were going to review the minimum withdrawal, the RIF minimum withdrawal. So various think tanks, industry organizations had made submissions. Some at one extreme said well, we should just get rid of it altogether, let people be in charge of making their own decision of how much to withdraw from their RIF. Other, more temperate average, and I think it's more likely to be accepted by the government for saying well, let's, just because the average life expectancy is increasing, let's just shift that RIF minimum three years, so what the percentage was as age 71 is now going to be the percentage at age 74, just giving people additional flexibility because it's a minimum. You can withdraw more than the minimum if you need to, but not being forced to withdraw more than you would have otherwise earlier in your retirement. So just giving early retirees and all retirees for that more matter more flexibility of how much they withdraw from their riff balances and when.
Speaker 1:Okay. So just to be clear, that is essentially speculation at this point, or proposers, absolutely that's speculation at this point.
Speaker 2:Thank you for clarifying that. Sometimes these announcements come out quickly. Sometimes, with the government, they take a while before they're actually announced, so I don't know when we'll get any more clarification on these potential changes.
Speaker 1:Gotcha, yeah, okay, last thing before I let you go here, michelle, maybe just high level or closing thoughts, but what can investors, like those that are listening today, learn from the Fidelity retirement report and apply to their own life?
Speaker 2:Well, I think there's really something for everybody in there. Even you go back and you have a new report every year. But it's thinking about the whole retirement journey from the pre-retirement, what are we going to do in retirement? What does this look like? What are some of the things I should be concerned about? We're looking about what's going on in our current macroeconomic environment and how is this impacting Canadians' perceptions of retirement? Also, what are the components of a written plan? I think it really comes down to having a written financial plan. It's not just if one has a written financial plan you feel better financially, it's also you see this again and again feeling better emotionally, socially, even physically, from having that written financial plan, which is all. Those are pillars of well-being. Coming back to having a written financial plan, and I would say you're more likely to have a written financial plan and have a better written financial plan when we're working with a financial advisor.
Speaker 1:Awesome, Michelle. This was really great. I appreciate you coming on and sharing some insights from the report here. Is this report available to the general public?
Speaker 2:It's available on Fidelityca. You can just download it in PDF format.
Speaker 1:Awesome, Michelle. Thanks so much for joining me today.
Speaker 2:Pleasure to be here. Thanks for having me, Evan.
Speaker 1:Thanks for listening to this episode of the Canadian Money Roadmap Podcast. Any rates of return or investments discussed are historical or hypothetical and are intended to be used for educational purposes only. You should always consult with your financial, legal and tax advisors before making changes to your financial plan. Evan Neufeld is a certified financial planner and registered investment fund advisor. Mutual funds and ETFs are provided by Sterling Mutuals Inc.
