Working in the gig economy holds more than monetary appeal for many people both pre- and post-retirement, but any additional income earned may significantly affect the plan financial planners have put in place for their clients, said Peter Bowen, vice president of tax and retirement research with Toronto-based Fidelity Investments Canada ULC, at the Canadian Institute of Financial Planners’ (CIFPs) 16th annual national conference in Halifax on Monday.
“The goal is to smooth tax income over the decades. You need to be aware of what clients are doing not to mess that up,” said Bowen during a presentation on the future of retirement. For example, if retirees continue to earn income, he noted, this may affect when they should withdraw money from their RRSPs.
The appeal of the gig economy, which offers independent workers short-term engagements, is not primarily financial, according to new research released at the CIFPs conference on Monday. In fact, 60% of retirees surveyed for the 2018 Fidelity retirement survey report, Retirement 20/20, cited a desire to stay physically and mentally active as their main reason for continuing to work after retirement. Of those who work, 40% said it gave them a sense of purpose and was the main reason they sought employment. However, for 49% of those who work during their retirement years, financial concerns were paramount.
The myriad reasons why retirees want to work is having an impact on the economy and their own bottom lines. Fidelity’s research found that 25% of Uber drivers are over 50 years of age. In addition, the fastest growing segment of Airbnb hosts are seniors over the age of 60 and they earn the highest number of five-star ratings. As the gig economy thrives, more doors open for retirees to enter the workforce part time or permanently. “This is indicative of the future trend,” said Bowen.
Thus, financial planners should not wait for clients to retire before addressing the implications and importance of continuing to work, Bowen advised: “This is an opportunity to talk to clients about what they can do in retirement. Have proactive conversations and mind the gaps where they will not be earning income.”
According to the Fidelity retirement survey, there is a disconnect between the expectations pre-retirees have about working after retirement and the reality current retirees are experiencing. Although 22% of retirees surveyed are now working, 66% of pre-retirees believe they will work after retirement.
Foremost among the reasons why pre-retirees believe they will continue to work is the freedom additional money affords them to do more of what they want. Concerns that extra money will be needed to support themselves and their spouses took second spot (44%), while the added security provided by earning extra income came in third (16%).
These perceptions may be affected by the declining number of defined-benefit pension plans and the often very public inability of companies in financial trouble to meet their pension obligations. According to the Retirement 20/20 report, only 45% of employers are doing a good job helping employees think about retirement although 58% believe their employers’ pension plan will be a major source of retirement income.
“There is a gap,” Bowen said. “Financial planners can help to fill this gap. This is a business development opportunity.”