The upside of delayed retirement

Freedom 85, anyone?

It was after a series of four 20-hour days that Barbara Bergen decided to switch careers. She was producing a TV commercial in Alberta’s Rocky Mountains that required early morning and late afternoon light, leaving a short window in the middle of the day for trying to nap at the hotel. Her cellphone buzzed incessantly with more to do. When it was over, she did a face plant into her bed and didn’t get up for two days. “At 52, I woke up and smelled the coffee,” says Bergen from her new home in Nelson, B.C. “At 53, I made the change.”

If that seems late in the game to be switching careers, consider this: according to Statistics Canada, 34 per cent of Canadians 55 and older were employed in 2010, compared to just 22 per cent in 1996. The road to retirement is paved with, well, more years, and making it toward the end often requires a mid-life job change. For Bergen, who had worked in the film business for 26 years, it meant something less physically demanding: she began an online business in 2007, selling urns that she designs and manufactures. “I needed something I could do well into my old age,” she says, “and thought this would be relatively bulletproof.” Then, in 2008, after already losing money in a divorce the previous year, her RRSPs were hammered by the stock market crash. She was left with a quarter of her savings.

Bergen, now 58, is an example of two key problems Canadians are facing when it comes to retirement: we are living longer and it’s harder to save. According to the Public Health Agency, by 2026 one in five Canadians will be 65 or older (in 2001, it was one in eight). Life expectancy has increased to 79 years for men and 84 for women. But with age comes responsibility, and two-thirds of pre-retirees responded to a 2011 MetLife Retirement Income IQ survey saying the odds of living longer is their number one financial risk. In a poll by the Canadian Payroll Association, 40 per cent said they were planning on late retirement due to a lack of savings. “Freedom 55 is a miss,” says Diane McCurdy of Vancouver-based McCurdy Financial Planning Inc., “and Freedom 60 is vanishing.” According to Bergen, “it’s Freedom 85” or bust. And if you’re part of Gen Y or younger, it’s not unimaginable living—maybe even working—until you’re 100.

So how much money would you need for a 40-year-long retirement? There was a time when $1 million in assets was your ticket to a condo in Florida and a leisurely life playing bridge. That notion is about as outdated as those stereotypes. In 2007, according to a recent poll by RBC, the average Canadian with an RSP had saved just $72,481, and since then the market has fallen 23 per cent. Planners tend to shy away from giving ideal nest-egg figures, saying each client’s needs are different. A million dollars would be fine, says Mark Neill, head of PH&N investment services, if you only spent $30,000 a year, had no debt to pay off, a balanced portfolio of equity and bonds, and were getting a 6.5 per cent return on investments. And if the market didn’t crash like it did in 2008. With a volatile economic climate (though the S&P/TSX Composite Index rebounded nicely by growing 30.7 per cent in 2009 and 14 per cent in 2010, last year it fell 11 per cent), record-level personal debt and registered pension plans becoming a luxury, it is next to impossible to make simple estimates. A better rule, says Neil, is to assume you’ll need less than 80 per cent of your current salary. “When you close your eyes and imagine retirement, what do you imagine?” he asks. “What do you plan to do?”

If you’re a Boomer or a Gen Xer, the odds are you’ll be working during a time when your parents had likely already paid off the mortgage and were living off their pensions. But it isn’t all bad news. A recent report by the National Study of the Changing Workforce found that 31 per cent of respondents over 50 said they were still working to avoid boredom, the second most popular reason after saving money. You may choose to switch professions (to something “more brains than brawn,” as Neil puts it) or scale back your role in the same job—something referred to as the hybrid retirement. And even though Canadians are working longer, fewer describe themselves as workaholics. In a recent report, Statistics Canada notes that those who are 55 and older make up a larger part of the population, and are generally less stressed than their younger counterparts.

For Cybele Negris, co-founder and president of domain name registrar, working into her senior years is a given, partly due to a lack of corporate pension, but partly out of desire. The 42-year-old imagines hiring managers to run the company day-to-day, and retaining shareholder status by staying on the advisory board. “It’s not like my work is physically exerting,” she says. “For some entrepreneurs in trades who are doing something like building houses, that’s tough.” But it’s not impossible, says McCurdy. One of her clients is a 69-year-old plumber who, despite having enough savings, doesn’t want to leave the daily grind. She says the main criteria that determines when people are forced to retire from their jobs is stress, whether they are sitting or standing.

No matter how long you aim to work, the best plan is still the simplest: save and pay off debt—though that will be an increasingly tough challenge for younger people today. The Canadian Federation of Students says student debt is at a high of $25,000; according to recent reports, the majority of young people aren’t comfortable investing in the stock market.

People are also developing some bad habits. “It used to be that a major milestone in any family would be paying off the mortgage,” says Tom Hamza, president of the Investor Education Fund, a non-profit that gives Canadians practical tools for saving. “It was like a sweet-16 party for adults.” Now that interest rates are low, Hamza is noticing two things: rather than paying off mortgages, people are more inclined to take out home equity credit and borrow money. Rather than buy an affordable house they can pay off quickly, they are opting for bigger houses that become a financial burden down the road. A third of retirees are still saddled with debt, according to Statistics Canada. But if you’re working until late in life, how much does it matter?

Bergen and her new husband have a small nest egg they’re planning to spend on a house once the real estate market softens. In the meantime, she rents a home—with a huge wall of windows exposing a panoramic view of Kootenay Lake and the adjacent mountains—out of which she also runs her business. Though she only makes about $20,000 a year, she’s hoping that will double once the business takes off. “I’m going to be working for the rest of my life,” she says. “But as long as I can do something that I like and am capable of, I don’t mind.”

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