2023-07-13 23:30:00
More and more Quebecers are considering postponing their retirement. What motivates them?
In reality, people increasingly need to have the means to retire, since Canadian women live an average of 22 years after age 65 (19.5 years for men), according to Statistics Canada. But longevity isn’t the only reason to postpone retirement. Expected investment returns have been declining for several years.
And savings are not there for many taxpayers: one in four Canadians (26.3%) contributed to an RRSP in 2020, for a median contribution of $3,600.
A study by Professor Luc Godbout of the University of Sherbrooke confirms that the average RRSP contribution increases with age. It is $1,100 for those aged 19 and under, $9,900 for those aged 55 to 59 and $11,000 for those aged 60 to 64. If the under 45s are monopolized by their family and financial responsibilities, their elders have, theoretically, more leeway to save.
Hence the idea of postponing retirement.
Especially since only 41% of Quebec workers in the private sector (100% in the public and in construction) participate in a pension plan, according to the Régie des rentes du Québec (RRQ).
And 17.7% of workers in the private sector benefit from a defined benefit pension plan (which guarantees a fixed pension until death, established in advance), compared to 62% who have a group RRSP and 19.6 %, a defined contribution plan (whose pension is not guaranteed).
Debt
Generalized indebtedness does not help future retirees. The debt ratio of Canadian households was 181.7% (so they owed $1.82 for every dollar earned) in the second quarter of 2022.
Worse, four out of ten older Quebecers are said to be in debt and overdue mortgage rates for those over 65 have been climbing inexorably for years.
Is it worth it?
While some have no choice but to postpone their retirement, others have the luxury of considering it. So here’s an old financial planner trick: divide your capital by 20 to find your approximate retirement income. For example: $100,000 will produce an annual annuity of $5,000.
Let’s take a person whose net income is $40,000. If she postpones her retirement for a year and saves half of her income, subject to return assumptions and the tax rate, she adds about $1,000 to her annual pension.
For savings of $35,000 after tax, we are talking about $1,750 per year. For the rest of your life.
ADVICE
You can choose to postpone your retirement to settle your debts, especially credit card debts, which are toxic. Postponing retirement is often not easy. Many experts suggest pushing it back a year to think about it for 12 months, rather than postponing it for three or five years as a defensive reflex.
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