Does it make sense to retire when we’re still in a pandemic?

By Jonathan Chevreau on July 27, 2022
Estimated reading time: 5 minutes

The COVID-19 pandemic has been life-changing for those over 60, and not just because of the risk of illness. Many are retiring earlier than expected—here’s how to decide if you can join their ranks.

Governments have warned that COVID continues to pose a threat, especially for those over 60—an age when many Canadians at least start contemplating retirement. As a result, some older workers who commute to corporate jobs have been reassessing their life plans, pushing employers for more flexibility, if not an early retirement package.

Lockdowns and retirement: Not dissimilar

“COVID-19 has given many people a glimpse into what life may look and feel like as a retiree,” says Aaron Hector, a financial planner with Calgary-based Doherty Bryant Financial Strategists. He notes that, before the pandemic, workers who shuttled between home and office may have found it difficult to envision retirement. Furthermore, the forced simplified lifestyle that COVID has inflicted on near-retirees may have shown them that they could get by on a lower baseline budget than they previously thought possible. “Depending on the circumstances, the pressure to work later in life may have eased a bit,” he says.

Others have been pushed into retirement sooner than expected, says Matthew Ardrey, vice president of Toronto-based TriDelta Financial, who has several clients in this situation. “COVID-19 may have forced companies to take stock and streamline, but it also affected many people’s thinking of what is truly important to them,” he says. “I cannot help but wonder if that will lead to revaluing of time and what you ‘need’ when you retire. Even if you have not been forced into retirement, perhaps you should take stock of your life and see if you are financially independent.”

Can you afford to retire early?

When Ardrey makes retirement projections for clients, he discusses not just the changes to post-work income, but also to expenses. Commuting costs may plummet, and there’s no need for new office clothing. Also couples may discover they no longer need two vehicles. While some expenses, like travel, may rise, “the overall effect for most people is a decline in spending,” he says.

Depending on financial resources, some may decide the expedient thing is to leave the big city and its inflated expenses. Indeed, according to veteran Collingwood realtor Karen Willison, many of her clients fast-tracked their retirement plans early in the pandemic, which contributed to a surge of property sales in cottage country.

“Even before COVID, my wife and I were thinking about whether we’d stay in our Mississauga home for the transition years into retirement, or downsize and relocate out of the city,” says financial marketer Darin Diehl, who was laid off at the age of 60 before the pandemic hit. “COVID caused us to think about our options more thoroughly.”

After personal health concerns led him to a reappraise of his retirement plans, Diehl says they have instead focused on some home improvement projects. “We are keeping our options open,” he says. “But generally, the concerns about my career ending sooner than planned and subsequent loss of some income remain.”

Full stop, phased or semi-retirement?

If you’re in a situation like Diehl’s, or simply view yourself as too young to retire in the classic sense of a full stop of work (particularly if you were counting on a few more high-income years to pad your nest egg), you could opt for semi- or phased retirement through self-employment or cobbling together several part-time jobs.

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“You may choose to continue working, but [you] no longer need to do it just for money,” says Ardrey, who has always spoken to clients about the concept of financial independence as opposed to full-stop retirement. “It’s the personal freedom to choose your future. Just because you don’t have to work, does not mean you will not.”

Exchanging one demanding full-time client (a traditional employer) for a few smaller clients provides more control over one’s destiny, not to mention a better work-life balance. New technologies, like Slack and Zoom, make it possible to work remotely from anywhere with a reliable internet connection. So you might still be able to swap an expensive city home for something cheaper in the suburbs or cottage country—especially with governments installing high-speed broadband access outside big cities. That way, you could reduce your expenses while continuing to work.

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However you choose, plan ahead

Whether you decide to continue working in retirement or step back entirely and rely on a generous employer pension and/or solid nest eggs from registered retirement savings plans (RRSPs), tax-free savings accounts (TFSAs) and/or other savings, you’ll want to make sure the numbers add up.

A two-spouse family retiring at age 65 has a good chance of at least one living past age 90, and the survivor may require a retirement residence. So, it may be a mistake to get too conservative in retirement, warns Adrian Mastracci, portfolio manager with Vancouver-based Lycos Asset Wealth Management. While fixed-income returns are finally starting to become decent, it’s not clear they will keep up with inflation. Meanwhile, the bear market in stocks may be an opportunity to raise equity exposure at bargain prices.

If 2021 was the last of your expected high-income years, look at ways to reduce income this year, perhaps through a large RRSP contribution, triggering losses within non-registered accounts to offset capital gains, or requesting an employer to shift some severance into the following calendar year, he says. High-ranking corporate executives may also be able to use a retirement compensation arrangement (RCA) to spread the severance over multiple years.

Also, a sudden switch to retirement may involve a financial windfall, such as severance pay or a retiring allowance, which could have tax implications.

“It’s important to look at the taxable income in the current year as compared to the future years,” says Hector.

MoneySense Investing Editor at Large Jonathan Chevreau is also founder of the Financial Independence Hub, author of Findependence Day and co-author of Victory Lap Retirement. He can be reached at [email protected].