The survey of 2,200 Canadians found that only 40% of respondents felt comfortable about their financial health in the first year of retirement. This drops sharply to only 29% confidence in year two. However, within years three to five of retirement, optimism takes hold, with 58% of retirees feeling confident about their financial circumstances. And once they had passed the 10-year mark, only one in five was still worried about having enough money.
This rise in confidence could result from retirees making the best of their new situation, but Irshaad Ahmad, president and managing director of Russell Investments Canada, says the company has found that many retirees meet their retirement goals once they are actually retired and understand what they need.
“Once they get through the first two years of retirement and they realize things are going to be OK, a lot of the concern starts to go away,” he says. “Also, they start to realize the power of CPP and OAS and their pension income, if they have one. Once they figure out how much they actually need, they start to feel better. A lot of people don’t know how much they need until they start to live it. We hear retirees saying things like, ‘I don’t have a mortgage anymore, my kids are all grown up, and this isn’t as tough as I thought it was going to be.'”
Sending out an optimistic message about retirement would seem counterintuitive to an asset management company that earns its returns from sales to pre-retirees. But Russell was already bucking the trend on conventional industry wisdom when the company suggested earlier this year that retirees probably don’t need more than 60% of pre-retirement income for a happy retirement. Most people in the investment industry quote a figure somewhere in the vicinity of 75% as what is needed.
Ahmad believes it’s important for advisors to have a retirement reality check for clients so they can work to create a realistic financial plan.
“We saw the data of our survey and the remarkable difference between those who had not retired and those who had retired. Given the level of anxiety displayed by those who have not retired, it’s evident there is a disconnect in information. We wanted to find a way to shine a light on that,” he says. “If you actually help people and identify what the issues are and what they need to do to solve it, presumably people will remember and be grateful for that.”
In conjunction with releasing the survey results, Russell has also announced an online tool that can be accessed by Canadians to do a cursory checkup on their financial health.
“We’ve used the baseline results of the survey to launch the Russell Financial Health Index—which is a user-friendly web tool that offers Canadians a simple and confidential way to gauge their own financial health and compare it to [that of] thousands of investors across the country,” says Ahmad.
The Russell Financial Health Index is available in both official languages at www.myfinanciallyhealthyretirement.com. The tool gathers data using a confidential web survey, which takes approximately five minutes to complete. Based on their answers, users are assigned a financial health score, which can be measured against the scores of other Canadian investors who have used the tool.
Each score is a result of analyzing variables that include physical health, personal finances, unexpected events and financial planning. Respondents are also asked questions related to how prepared they feel to ride out changes in their long-term investment performance before and during retirement. The index can be revisited and updated any time personal financial circumstances or financial markets evolve.
Russell has found a few common traits among financially healthy retirees from the research. These types of people do tend to have higher net worth, assets and income, are much more likely to have a pension and started planning for retirement at an earlier age.
They also tend to be fortunate in terms of life experiences. They are less likely to be separated or divorced and more likely to have paid off their mortgages and to have received an inheritance.
Ahmad emphasizes that professional financial advice is also extremely important.
“People who work with advisors have a higher level of financial health and feel better about their financial health than people who don’t use an advisor, so clearly advisors are doing a good job in that regard,” he says.
![]() | Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com |