Retirement is much more than just a milestone: it’s the beginning of the end of working life, professionally speaking. Many young retirees have dreamed of it for a long time, imagined it beautiful, filled with projects that were impossible to achieve before, but not all of them took the time to prepare it well.
“We see more and more people who find themselves in delicate situations and who anticipate retirement with anxiety,” explains Julie Brissette, budget advisor at ACEF de l’Est de Montréal.
This has an impact on the morale of new retirees who thought they had access to a certain lifestyle. Tomorrow is sad.
The advisor works with two typical clienteles. First, there are people from the “middle class” or around, who have savings, but whose forecasts no longer hold water, with a higher cost of living, explains Julie Brissette.
“We are not talking about employer pension funds, but mainly about people who had saved on their own, with certain forecasts. […] They get to 65 and realize they don’t have that much. »
In this case, it is rather necessary to revise the lifestyle that was planned to adapt it to what is possible with the current cost of living. Which is not without creating financial stress. “They thought they had a certain standard of living in retirement and realize they’ll have to cut back,” says Julie Brissette.
And then there are those who had practically no savings and who, in the current economic context, find themselves squarely in survival mode. Someone who receives the minimum old-age pension with the guaranteed income supplement will have $1,792 a month, explains the adviser. It is then necessary to revise the expenses and ensure that you have access to all the benefits. In the worst case, these people will be redirected to community resources, which can be particularly difficult for someone who has never used them.
The key is the replacement rate, explains Pierre-Carl Michaud, scientific director of the HEC Montreal Retirement and Savings Institute. That is to say the ability to have part of the income on which one lives before retirement.
“From a retirement perspective, low-income people have a very high replacement rate,” he explains. If we accumulate the old-age pension, the guaranteed income, the pension plan, that can make a good replacement rate, estimates Pierre-Carl Michaud. So the pace of spending is maintained.
Still, the purchasing power of retirees is currently diminished: “Prices are not going to come down. There will be no negative inflation, recalls Pierre-Carl Michaud. So if people don’t have retirement income indexed to inflation, they’re going to feel it [the decrease in purchasing power]. »
Sometimes indexations partially compensate for a high rate of inflation; often this is not the case.
People without a supplemental plan or with a supplemental plan without indexation are therefore likely to have more difficulty adjusting.
“Many of these workers are left with the surprise of not having a pension that increases as much as the rate of inflation,” says Professor Michaud. If in addition they had substantial work income, the difference in lifestyle may be difficult to accept.
Especially since a retiree does not really have room for adjustment. A worker can decide to work overtime to increase his income, recalls Pierre-Carl Michaud. “When you’re retired, if you come back into the workforce, you won’t get the same kind of job you had,” he says.
Fortunately, more than half of people have accumulated substantial wealth to maintain the spending pace they had before retirement, according to data from this specialist. “50% to 80%, study to study,” he says.
In the best of all possible worlds, we manage to retire without debt. In life, sometimes that is not the case.
“We can’t put all the debts in the same basket”, nevertheless nuances Mélanie Noël, wealth manager at Desjardins.
“I believe there are debts that are less worse than others,” she said. For example, if the debt is the mortgage—and that’s often the big debt people are going to have—if you’re able to make the payments, it’s not debt that’s so bad. Capital is added to each monthly payment. »
Especially if we are at the end of the reimbursement process. In the event of a sale, this capital will be recovered. It is estimated that 20% to 25% of people retire with a mortgage balance.
Debts related to producing income are less of a concern, adds Mélanie Noël. And wanting to settle these debts at the expense of one’s heritage is a bad strategy, she says.
Conversely, borrowing or credit card debt should be avoided on the eve of retirement.
Mélanie Noël advises getting rid of consumer debt, if possible, but not giving in to the temptation to dip into your RRSP to get rid of it at all costs. Especially since the solutions are more numerous than one thinks, she says: “It is a question of putting in place a strategy to arrive at retirement with peace of mind. »
In the study Playing with fire, the debts of households approaching retirement, it is calculated that between 1999 and 2016, debt is increasing in relation to income for people approaching retirement. And this is not a trend that is diminishing, estimates Pierre-Carl Michaud, one of the authors of this study. “Debt as a percentage of income is rising, but so are assets and low interest rates that debt payments have remained relatively constant,” said Pierre-Carl Michaud, scientific director of the Institute on Retirement and savings from HEC Montreal. “Yes, households are taking on more debt, but they have more assets because there has been a decline in interest rates over those 20 years. In general, people kept the payments constant. This has led to more debt. With interest rates rising, that should change, but in the end, the important thing is to get the balance sheet right. You have to look at what the debt is used for to assess the net position of the household, says Pierre-Carl Michaud.
“You have to be honest with yourself so you don’t get shocked. »
Nadine says so. In her late fifties, she has been retired for a few years. And she could hardly be happier: in interviews, she shines. Her lover Jocelyn, by her side, is also a young retiree. Jocelyn started by slowing down. Nadine suddenly stopped.
“It’s not true that when you retire, you spend less,” she continues. And it’s important to be realistic when doing your financial planning because it’s your net. It does not make you happy in retirement, but it is certain that if you are experiencing financial insecurity, you will not be able to make the transition well to this stage of life which is wonderful, quite honestly. »
Since retirement, the couple has kept a very rigorous budget.
“We wanted to confirm that the planning we had done was correct,” he explains, in chorus. And we weren’t worse off. It gives confidence. »
According to Jocelyn, good planning makes retirement, in the end, less expensive. It allows you to make choices, to establish priorities, without depriving yourself.
Their pace of life has remained the same, economically speaking. On the other hand, Nadine discovered the praise of slowness…
“For me, retirement is about having time. When you have children and you work, you run. At home, at work and in between. For 35 years I ran. Happily, I was pampered, but I ran. Retirement is about taking my time. »
And Nadine also clarifies, very thoughtfully, that it’s time to take stock of both your financial and your life: “You have to know yourself, she says, recognize yourself. Take stock, find out what makes us happy in life, what turns us on and motivates us. »
“Even if you’re close to retirement, it’s never too late to do the right things. You have to make a budget and make a financial plan,” says Mélanie Noël, wealth manager at Desjardins, who reminds us that retirement plans are not universal. There is one for everyone.
It is calculated that it takes about 70% of pre-retirement income to maintain the standard of living.
Moreover, a retirement plan is dynamic. The one made five years ago may no longer be suitable. You have to be agile and flexible in your planning, not cling to a strategy that no longer suits your realities, which inevitably evolve. It also allows you to plan projects that are realistic. This avoids arriving at retirement broke or without the financial resources necessary to realize a dream. Whether it is to travel around the world or to go to the cinema every week.
The subject is delicate, but must be discussed with your financial planner in order to develop a strategy that works for you. In calculating retirement finances, there are big unknowns: death, first. The potential disease, then.
Planners and advisors frequently see two behaviors from retirees: those who prefer to spend as little as possible in order to have it until the end of their days – where health-related contingencies become more…likely. Conversely, there are those who want to take advantage of the first years of retirement to travel, even if it means living much more modestly later.
“It depends a lot on the personality of the person,” says Julie Brissette. It’s like budget management. Some people are more careful, more economical; others are not going to save for later because they think they might die tomorrow so they want to take advantage of it. »
Mélanie Noël, of Desjardins Wealth Management, reminds us, however, that when retirees stop traveling or are less active, with age, money must be provided for expenses related to aging, sometimes illness. “People believe that when they stop traveling, the standard of living will go down,” she says, lucid. But the care, sometimes it is expensive. »
One evening, after a very bad day at work, Jocelyn told his lover that he was retiring. In fact, it was more of a cry from the heart, driven by the anger that drove him. Nadine, at his side, listened to him. Then she gently whispered in his ear that he couldn’t retire in a rage.
We do not approach this stage out of spite, she says. And it was done. Jocelyn waited for a better day to make it her last, at work.
Since then, the couple has been living their best life. Golf, vacations, restaurants, planned and monitored expenses, without stress. “We made choices about our pleasures,” says Jocelyn, who says her epicurean side is well assumed.
The couple are happy. It’s obvious. “We are two strong characters, two independent. And despite that, we’re tightly knit,” he said.
“The work has freed up a lot of time that I have for myself,” explains Nadine. I take care of myself, I take care of those I love. »
“When you work, the same opportunities arise,” she also said. It’s just that you close the door, because of work. While there, you seize them. »