Many Canadian baby boomer employees are planning to withdraw 15% of their total savings a year, on average, following their retirement, which is four times the usually recommended rate, according to new research from Toronto-based Morneau Shepell Inc.
The consulting firm’s study, released Wednesday, found that 17% of survey participants plan to withdraw more than 20% of their total savings a year in retirement and another 21% believe they will withdraw between 11% and 20%.
These findings come from the report, Forgotten decisions: the disconnect between the plan and reality of Canadians regarding health and finances in retirement, which surveyed older Canadian employees’ for their views on financial security in retirement as well as their employers for an understanding of the workplace programs available to employees in order to help them prepare for retirement.
Those results, in addition to the fact that 35% of employees report saving 10% or less of their current salary for retirement, suggests that older Canadian employees are not thinking practically about their post-employment finances, the report states.
“Employees have an unrealistic view of what their financial situation will be in retirement,” says Paula Allen, vice president, research and integrative solutions, Morneau Shepell, in a statement. “There is an evident disconnect between how long retirement income typically needs to last, the savings pattern of many, and the withdrawal plans of most.”
Approximately one-quarter (24%) of employees surveyed admit they will not be financially prepared for retirement and an even greater number (51%) of employers surveyed for the report believe this to be the case for their employees.
The report indicates that one specific area of retirement in which employees are underprepared is heath-care costs and how those will affect these survey participants once they lose access to their workplace benefit programs.
More than six in 10 (61%) employees surveyed are currently suffering from one or more chronic health conditions and 66% state health-related costs are one of their top concerns in retirement. In fact, 59% of the employees say they will not have access to an employer-sponsored health benefits plan.
“Chronic health issues are so commonplace that sometimes they are accepted as the norm. Unfortunately, this can lead to complacency and lack of investment in one’s own health and lack of preparation for health costs,” says Allen.
“The cost of chronic health issues, which often increase with age, can be a big shock during retirement, as employer health benefits may no longer be available for medication and other health-related support,” she adds. “As well, the public drug plan covers much fewer medications than most employer-sponsored plans.”
Although 96% of the employers surveyed indicate it is important for employees to know how their health costs will impact their retirement income, 29% also report they do not provide retirement-related financial information.
“Employers clearly see risk in the retirement preparedness of employees, but often do not have the systems in place to offer the necessary support and education,” says Allen. “Providing employees with more knowledge on the facts and options for personal financial management and health cost issues in retirement is crucial to adequately prepare employees for their transition to retirement.”
The report is based on the responses from surveys of 1,013 working Canadians who were 50 years old or older at the time of the research and 100 employers. The data was collected in September 2015.
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