The longevity paradox

We’re living longer and our retirement savings are falling short, according to a new report.

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aging_322In its first-ever Canadian Investor Survey, released Tuesday, BlackRock Canada warned retirement savers their nest eggs may have to last 25 years or more.

Defining longevity as “the defining financial challenge of our age,” head of BlackRock Canada Noel Archard said in a release “the paradox is that investors recognize that their retirement savings will need to last longer than ever before but they aren’t making plans to ensure they will actually have the money they need.”

BlackRock surveyed 1,720 investors online early in May, focusing on those with at least $5,000 in investable assets (not counting real estate or workplace pensions). More than half of this group, or 56%, believe their savings will have to last at least 25 years in retirement. Younger investors think their nest eggs will have to last at least 30 years.

Unjustifiable optimism & dangerous passivity?

BlackRock considers Canadian investors to be “unjustifiably optimistic and dangerously passive” when it comes to assessing their retirement readiness. Seventy per cent believe government pensions will be there for them in retirement but only 59% of non-retired investors have a written financial plan to get them there, a percentage that falls to about 50% for younger investors and those with under $100,000 in savings.

Fully 18% of those surveyed say they aren’t saving anything for retirement on a monthly basis, while 11% don’t know or can’t recall what they save. One in five non-retired investors don’t have an RRSP and two in five have no employer-sponsored pension plan. Only 35% are in Defined Benefit pensions plans, 18% are in Defined Contribution plans and just 15% are in group RRSPs (typically younger investors.)

Passivity has also cost investors: 46% have invested less in the stock market in recent years and a third admitted to having missed out on the post-2009 stock-market rally. Those that do also suffer from “home country bias,” meaning they tend to overvalue Canadian securities.

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One comment on “The longevity paradox

  1. As bond yields normalize as they are doing now gradually maxing out TFSA's,RRSP's becomes even more beneficial.Today, the highest provincial strip bonds are 4.25% to 4.40%. At a 5% annual bond yield over 35 years maxing out $11,000 TFSA's and $11,000 in RRSP's a couple can accumulate $1,987,046.76.

    This is good family planning as each adult child can do the same accumulating $993,523.38 each amassing another $1,987,046.76.This is just examples but it shows how using tax free,tax deferred accounts and compound interest can really be critical for their finances and the family's as well.

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