In a 2022 study conducted by Edward Jones and Age Wave, 54% of retirees and pre-retirees over 45 said they viewed retirement as an exciting new chapter of life. However, without a sound financial strategy and adequate preparation, retirement can present significant challenges.

Canadians today are facing two significant new retirement realities. First, retirement timespans are much longer than before — 27 years on average, according to Statistics Canada. While the current average retirement age of 64¹ hasn’t changed much, life expectancy certainly has increased by more than two decades² in the last hundred years. Today, the joint life expectancy for a male/female couple of average retirement age is 94.2 – at least one spouse is, on average, expected to live in retirement for 30 years.

Second, only 9.2% of Canadians had an employer-sponsored pension plan in 2017, down from almost 22% in 1997.³ Many companies have shifted away from defined benefit pensions to either defined contribution plans, group RRSPs, or simply no retirement plan at all.⁴ We can no longer rely on the government, the union, or our employers to take care of us when our working days are done. We must take charge of our own retirement.

Unique risks threatening retirement

While there are many different investment and financial risks to guard against, a healthy retirement income can be threatened by a couple of key risks in particular: longevity risk and inflation risk.

Longevity risk is the risk of outliving your retirement savings. Although females, on average, live longer than males, the average life expectancy for males and females combined is currently about 82 years.⁵ However, that figure is somewhat misleading since it represents life expectancy from birth, and the life expectancy of a 64-year-old retiree is markedly different than that of a newborn. As indicated previously, the joint life expectancy of a 64-year-old male/female couple is age 94. To protect against longevity risk, we must plan for an income that sustains at least 30 years of retirement.

Inflation risk is the erosion of your purchasing power over time. As of May 2022, the inflation rate in Canada topped a 40-year high at a whopping 7.7 per cent.⁶ While that’s significantly higher than it has been in recent years, inflation in Canada has averaged 3.8 per cent per year since 1960.⁷ Although 3.8 per cent may not seem too threatening, it means the cost of living will more than triple over a 30-year retirement. To help protect against this risk, retirement income should include strategies designed to help grow with the cost of living. Yet, when approaching retirement, investors tend to become more conservative with their investment portfolios.

If I could turn back time

In 2022, Edward Jones and Age Wave conducted a study of over 9,000 people to assess retirement trends across North America. The study indicated that “retirees started saving at an average age of 37 but wish they had started saving nearly a decade earlier, at 28.”

When it comes to saving for retirement, it’s never too late to start, and no amount is too small. But the math shows — the sooner the better. A financial professional can help ensure you consider your retirement objectives at retirement, determine the financial requirements to meet those objectives and develop and implement a strategy to help achieve your retirement goals.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor, Nicolle Lalonde.

Important information:

1. Statistics Canada, Retirement age by class of worker
2. Statistics Canada, Life expectancy, 1920-1922 to 2009-2011
3. National Association of Federal Retirees
4. The Institut québécois de planification financière (IQPF), Life expectancy calculator
5. Statistics Canada, Life expectancy and other elements of the life table, Canada and provinces
6. Statistics Canada, Consumer Price Index
7. WordData.info, Development of inflation rates in Canada