What you think you want to do and what you end up really doing for your retirement appears to be different.  Should those of us nearing retirement adjust our expectations to reflect a more realistic view of what will really happen?  It is somewhat in our human nature to dream a little without firmly determining how realistic those dreams are given the various realities that can impact how our future life unfolds.  Some interesting facts have jumped out from a recent poll including the general finding that retirement expectations held by Canadians (how you think you’ll spend your time) often turn out very different once reality sets in and you get to those retirement years.

Based upon the results of a 2011 poll sponsored by RBC and reported on in the December 14th addition of the Ottawa Citizen, retirement dreams of spending winters in the sunny south are just that, dreams.

The poll focused on the expectations of near retirees versus those already retired.  Some of the interesting results include:

• nearly 75% of Canadian over 50 think they’ll spend retirement days travelling but only 58% of those retired spend their time away from home
• 30% of those nearly retired or over 50 believe they will spend winters down south and summers in Canada – the snowbird lifestyle – but only 14% of those retired live the snowbird lifestyle
• 60% of women near retirement expect to do volunteer work once retired but 41% actually do
• 53% of men near retirement expect to do volunteer work once retired but 35% actually do

The poll was conducted on line by Ipsos Reid between February and March and surveyed 2,245 adults in the 50 and over age group with assets of at least $100K.

More poll details are available at the following link:

http://www.rbc.com/newsroom/pdf/1213-2011-snowbirds-poll.pdf

Given RBC sponsored this poll, financial planning is being pushed to assist the near retirement group to examine options.  The results of this poll and other polls described in Lifepast50 posts, point to the fact that flexibility is needed as you consider how you’ll spend your time.  Working through your retirement expectations and determining how you might get there along with your capability to achieve those expectations is a worthwhile endeavour.

An article published in the Ottawa Citizen by J. Chevreau (from the Financial Post) on Thursday January 27^th, highlights some interesting aspects of RRSPs and RRIFs that I wasn’t fully aware of.  The article calls these the “dark side” of RRSPs.

We shouldn’t be surprised by the fact that tax is owed when RRSPs are deregistered and converted to RRIFs.  The details surrounding this probably aren’t as well known.  The RRIF forced withdrawals are phased in at 7.48% at age 72 and increase to 20% at age 94.

As markets recover after the recessions of the 1^st decade of the 21^st century, and as more boomers approach retirement, the taxes owed are being looked at more seriously.  That money will be taxed at one’s marginal rate.  Should you be fortunate to have a large RRSP and consequently large withdrawals as a result of a RRIF, your tax bill could be significant.  Your tax deferred gains which you may have enjoyed earlier now may come back to unexpectedly hit you.  Current RRSP rules may force you to take out more than you need to spend to enjoy a comfortable lifestyle.  In some cases, if one spouse dies, the surviving spouse then has the total RRIF value of both spouses to deal with – a larger tax liability.

Some will argue the benefits of growing money in a tax deferred plan over many years outweighs the disadvantages.  Additionally, those that re-invested taxes saved as a result of their RRSP contributions, have most likely benefited even more than the tax liability that remains once it is converted to a RRIF.

TSFAs may be a rescue option for some seniors with large RRIFs.  Putting $10,000 of RRIF income into a TSFA per senior couple could grow to $200,000 in 20 years and be completely tax free.  Of course you need to live long enough to realize this advantage.

Other strategies exist if you retire early (before age 65) including RRSP early withdrawal with tax paid at a lower marginal rate in advance of receiving other retirement benefits once you turn 65.  This might be a benefit if you can stay below the Old Age Security claw back level once you turn 65.  In other cases, putting stocks in non-registered plans may make sense since only 50% of capital gains is taxed.  A long term buy and hold investment plan means no tax is paid until you sell and take the profits.  If you had losses in other securities, those can offset taxes on gains.

This all points to the fact that the Canadian federal government needs to examine the RRIF withdrawal rules given rising life expectancies.  Combine that with today’s and recent year’s small investment returns and it may be time to get some action on this point.  As the new boomers turn 65, with waves to follow, it won’t be long before a serious segment of the Canadian population nears 71 when the RRIF rules kick in.  Some tax surprises may be forthcoming.

Some recent articles published in newspapers across Canada in June 2009 introduced me to the Institute of Wellbeing and their signature product called the Canadian Index of Wellbeing (CIW).  You can download their first report, “How Are Canadians Really Doing?”, from their website – www.ciw.ca.

Without diving into a huge amount of detail, which you can read for yourself in their first report, the Institute has a mission to report on the quality of life of Canadians and promote a dialogue on how to improve our quality of life.  Over the long run, the Institute wants to present information that can be used to contribute to or define public policy and to also contribute to establishing better public policy.

The report states that Canada lacks a single, national method that shows whether our quality of life is getting better or worse.  They point to the typical measure seen by all, the Gross Domestic Product (GDP), which is often used as a means to indicate economic health – generally speaking, if GDP is growing we are doing well, if it is declining then we are doing poorly.  The Institute contends that this is an inadequate measure of “wellbeing” so they have defined a different paradigm to more accurately measure “wellbeing”, hence their CIW.  The CIW uses 1994 as a baseline and measured results from that point in time.

The report states that reflecting Canadian values is a cornerstone of the CIW.  Through questions posed to Canadians, they identified top priorities for quality of life:

• primary and secondary education
• health care access
• a healthy environment
• clean air and water
• social programs
• responsible taxation
• public safety and security
• job security
• employment opportunities
• a living wage
• balanced time use
• civic participation

The report indicates that these common themes cut across regions, social backgrounds and demographic characteristics and will form the basis for future assessments and ratings.

Based upon the Canadian values, they established a series of 8 domains and began their more detailed research.  The first report deals with the first 3 domains – Living Standards, Health Populations and Community Value.  Subsequent reports will deal with the other domains.

The 1st report indicates that some clear patterns have emerged as a result of their initial work:

1. Living Standards:
   • growth is unequal
   • many made more money, in part because we worked longer hours
   • we were wealthier on average
   • inequality increased – rich got richer, the poor stayed poor
   • labour market conditions improved but long term unemployment was up and job quality was down
   • key social programs provided less support for working age people

2. Healthy Populations

   • we live longer
   • we are not living better
   • we don’t feel as healthy as we used to
   • more teenagers are reporting health problems
   • money and education matter
   • we’re putting on weight and it is making us sick
   • fewer Canadians are depressed but rates are still high
   • some of us are adopting healthier lifestyles
   • we’re happy with our health care services
   • there are interesting geographic differences across the regions of Canada

3. Community Vitality

   • we’re participating more in organizations and volunteer activities
   • our social network is shrinking
   • we provide more help and care more about others
   • crime is going down
   • trust is relatively high
   • there is good news and bad news about social inclusion
   • we feel we belong

Overall one can ask how might the CIW impact not only boomers but Canadians in general.  It shouldn’t take too much imagination to see political parties, special interest groups, and interested citizens using the findings to promote their agendas.  Time will tell if this comes to fruition.

One can even ask what all of this means and is it useful in any way or just another way to spend some money for some meaningless results.  Time will tell if this is the case as well. We’ll just have to wait and see.

Maybe they have achieved something already.  Have they captured a description of Canadian culture through their identification of “values” and the creation of their domains and the interrelationships noted in the 1st set of findings?  This is certainly worth some discussion.

As this is just the 1st report and more are expected, we boomers shouldn’t expect any huge conclusions to arise from the CIW quite yet but this 1st report does provide some interesting facts which, when combined with other known factors associated with the boomer generation, could indicate some lifestyle adjustments might be needed in our future.  After reading the report, some findings seemed obvious given known facts but others were interesting to read about, especially how they interrelated results from the different domains to form some of their conclusions.

How should boomers interpret the results obtained so far?  Despite evidence that I will live longer than previous generations did, I see a younger population that I might need to help support me in the future not feeling too healthy.  Might this impact the availability of adequate health care in my upcoming senior years?  This might be further compounded by the fact that the boomer population will soon form the largest part of the Canadian population and a less healthy younger population isn’t a good thing.  Might we have to continue working, part time or full time, to maintain our existing or anticipated lifestyle.

I’ll be looking for the future reports.

Lane@lifepast50.ca