It’s no secret Canada is heading towards a retirement crisis. As workplace pension plans become scarcer, especially in the private sector, the onus has been shifted from employer to employees to make up the shortfall in retirement. Nobody wants to spend their golden years struggling to make ends meet, yet poverty is rising among Canadian seniors, according to a new report by the Organisation for Economic Co-operation and Development (OECD).
Senior Poverty On The Rise In Canada: OECD
Although Canada remains among the lowest in poverty rates for seniors in OECD countries, the facts show they are becoming increasingly cash strapped. While most countries saw their poverty rates decline between 2007 and 2010, Canada’s poverty rate when up by two per cent. Baby boomers heading towards retirement aren’t adjusting well to the new retirement reality. Just a few decades ago you could expect to stay with the same employer during your career – today, you’re lucky to stay with the same employer for five years.
The three-legged stool of retirement – government benefits, workplace pensions, and personal savings – is slowly being replaced with a two-pronged solution. As employers switch from defined benefit plans that guarantee income in retirement to defined contribution plans where the investment risk sits squarely on the shoulders of retirees, Canadians need to stop relying on private pensions so heavily. Canadian seniors suffer a double whammy because their retirement incomes aren’t supplemented to the same extent that seniors in other OECD countries are. This issue has put CPP expansion on the forefront, which may help younger workers, but won’t provide much assistance for workers over 50.
New Standard Of Living Challenges
What’s leading to this drop in the standard of living in retirement? Grey divorces are one of the main culprits. The last thing you want to do is stay in an unhappy marriage due to financial dependence – this can lead to resentment and bitterness. With four in 10 first marriages ending in divorce, this sad reality is more common than you’d think today.
Divorce can wreak havoc on your finances, especially for those nearing retirement. Eighty per cent of Canadians who divorced age 50 or older said they’ll need to stay in the workforce longer as a result of splitting from their partner, while 62 per cent said their finances post breakup aren’t sufficient to meet their retirement lifestyle, according to a study from Investors Group. How did these retirees cope with the income shortfall? Forty seven per cent admitted to scaling back their lifestyle in retirement, while the majority (55 per cent) said their retirement plans changed completely (probably not for the better).
Plan Ahead To Protect Your Finances
If you know your marriage may be on the rocks, it’s important to get your finances in order ahead of time. “If you’re considering getting a divorce, you should speak with an advisor before you separate,” says Christine Van Cauwenberghe, assistant vice president of Tax and Estate Planning at Investors Group. “The problem for people who separate later in life is that you have a shorter period of time to make up the retirement savings gap. If you’re 60 and newly divorced and you’re planning to retire, it doesn’t give you a lot of time to plan.”
Van Cauwenberghe adds that it can be challenging to predict how a divorce will affect a retirement plan.“The one difference with pensions is they can be more difficult to value. I think the issue isn’t really is one specific asset,” she says. “You have to look at the entire picture and look at what you’re going to keep and sell. If you know you aren’t going to have sufficient pension income, tell your advisor your goals, resources, time frame and risk tolerance, and be prepared to go on a bit of a budget.”
Splitting Finances Create Credit Issues
Another challenge for splitting seniors is the re-establishment of their finance products. Although couples can save fees by consolidating their finances, partners whose names aren’t on the one bank account, credit card, or line of credit, may have a hard time getting credit post-split. “If the only credit card you have is in the name of your spouse, it may be difficult to get credit later on. If you don’t have much income and you don’t have any credit rating, it’s difficult to recover after that. Try to establish a financial history by getting your own credit card. This can come in handy if you want to buy a house after splitting up,” says Van Cauwenberghe.