The Upside: IYKYK – How a written financial plan now can pay off later

[00:00:16] Emily Anonuevo: Hello, and welcome to The Upside. I'm your host, Emily Anonuevo. Having enough money put aside for retirement, dealing with ongoing market changes and inflationary pressures, these are just some of the factors Canadians have identified as top concerns as they plan and prepare for the retirement stage of their lives. Fidelity's Annual Retirement Report highlights trends, insights and concerns of Canadians and the ever-changing retirement landscape. Here to talk about navigating that landscape is our tax team of experts at Fidelity. Please welcome Directors of Tax and Retirement Research, Michelle Munro and Jacqueline Power. Welcome ladies.

[00:00:53] Jacqueline Power: Thanks so much.

[00:00:53] Michelle Munro: Thanks for having us. Great to be here.

[00:00:55] Emily Anonuevo: So happy that you're here. Exciting times, the annual Fidelity Retirement Report is out right here, hot off the presses, here it is, and, incredibly, the 20th edition of this report. Michelle, incredible numbers, incredible track record, what can you tell us about the top insights from the report this year?

[00:01:16] Michelle Munro: Twenty years, so we really get some longitudinal insights. It's a Canadian-specific survey. We look at Canadians coast to coast, about 2,000 of them. We're focused on pre-retirees, who are age 45, and retirees as well as going much older. We're able to get all those insights, longitudinal insights, one of the key takeaways is that it's not a one size fits all. One of the key impacts that we've found this year is that Canadians are concerned, increasingly, inflation, global politics, what's going on there, as well as market dynamics. All of these things together are making people a little bit worried, understandably, and with that looking for a unique, individualized approach to retirement. It's a little about rewriting the retirement playbook.

[00:02:14] Emily Anonuevo: I like how you phrased it that way. Thousands of Canadians surveyed for this piece and it really is a staple report in the financial services industry. Spanning 20 years, Michelle, I'm going to go back to you, how have the views of Canadians and retirement changed over that span? You've been here a while, you know. 

[00:02:32] Michelle Munro: We really wanted to see what's changed in the past 20 years. Looking at financial challenges, 84% of respondents said that they think that retirement is going to be more financially challenging than it was 20 years ago. The next piece of that is what does retirement look like. It's no longer that hard stop. 85% think that it's going to be a more gradual approach, a phased-in approach to retirement. The other piece, 88% of people said retirement is going to be more complex than it was 20 years. They want a more unique ... they're looking at what are their lifestyles, what does that look like in retirement? What are those financial choices? All of that is making it more complex than it was 20 years ago. We're seeing a change in the retirement landscape, how do we adopt and really create that retirement vision that people want to have?

[00:03:41] Emily Anonuevo: Really interesting stuff there. I mean, to me, what stands out is that retirement is not about that hard stop anymore. It's not about stopping working completely, we'll get into that later, and the financial challenges, the financial struggles, realistically. Jacqueline, I'm going to go to you, what are Canadians saying about how much they should save up for retirement and how does that overall plan look for them?

[00:04:06] Jacqueline Power: It's really interesting. Again, having done this report for so many years we have a lot of data that we can draw from. We were able to go back to 2005 and have a look at what did pre-retirees expect at that point. They thought they needed $447,000 in order to retire. Fast forward to 2025, they need $1,020,000 at this point. That's a lot of money, right?

[00:04:31] Emily Anonuevo: I mean, that's a 20 year span but...

[00:04:34] Jacqueline Power: It's huge, it is.

[00:04:34] Emily Anonuevo: That is incredible.

[00:04:34] Jacqueline Power: So we thought, okay, is this cost of living increase and is that what it is? So had a look as far as that was concerned and inflation over that period of time was 2.2% annualized.

[00:04:47] Emily Anonuevo: Now it's looking different.

[00:04:48] Jacqueline Power: When you look at that in comparison to what their expectations are, their expectations are almost double that at 4.2%. Where is this coming from? We understand that everybody's different and everybody's needs are unique but what's changed in the last 20 years that's made it so that that they have this need for more money. Lots of factors that we're thinking are affecting it. One is the pandemic affected us a lot and I think people are considering travelling more so you're having to budget in as far as that's concerned. We were stuck in our houses for two years, I think people want to get out and out and about. 59% of respondents said that during retirement they anticipate that they're going to have to be supporting children and grandchildren, and this is very different than what the thoughts were 20 years ago. That's another thing that's factoring into all of this.

[00:05:45] What is really interesting as well is 59% of individuals who were born outside of Canada, they're saying that they have barriers to retire because of the fact that they're supporting family members. If you look at this in comparison to Canadians, only 31% of Canadians have that same feeling. Really interesting to see there are so many factors that are affecting what people feel they need as far as retirement is concerned.

[00:06:12] Emily Anonuevo: Really fascinating. What stood out to me in the survey was just the lifestyle mindset that's changed for pre-retirees and retirees. You mentioned the pandemic sort of shifted our mindset. They don't want to give up the travel. They want to sort of take life by the hands and build that travel budget into the retirement plan, but at the same time the pandemic raised all the prices, it created such a different market environment. Jacqueline, back to you, how about the age of retirement, how has that changed over the years?

[00:06:45] Jacqueline Power: It's interesting because it's definitely fluctuated and there have been changes depending on time periods and that sort of thing.

[00:06:52] Emily Anonuevo: Is it still 16 or has that changed now?

[00:06:55] Jacqueline Power: At the moment it is but I'll take you through the journey. Essentially, in the late '70s it was 65, then it started to decrease over time, got down as low as 61 in 2005. Since we've been doing the survey we've been watching and that number is starting to go up again. Over the past 20 years it's been going up on a regular basis. It's now up to 65.

[00:07:23] Michelle Munro: Back to where it was in the '70s.

[00:07:24] Jacqueline Power: Exactly. StatsCan is saying '23 and '24 that it was at 65. It'll just be interesting to see where that goes. Of course, in the report we asked, when do you expect to retire? Only 26% expected to retire under age 65. What I thought was really interesting is 16% don't expect to retire at all.

[00:07:49] Emily Anonuevo: That's not even in their plan. Interesting.

[00:07:53] Jacqueline Power: That wasn't even on our radar in '05, we didn't ask that question in '05.

[00:07:58] Emily Anonuevo: Didn't think about asking that question.

[00:08:00] Jacqueline Power: No. So it's going to be interesting to see sort of what happens in the future. We don't anticipate the retirement age is going to go down.

[00:08:07] Emily Anonuevo: It'll be interesting to see, it might just go up.

[00:08:09] Jacqueline Power: It might continue to increase as cost of living increases and people may just decide that they need to keep putting off that retirement.

[00:08:21] Emily Anonuevo: Branching from that, the age of retirement when they do retire Canadians, individuals, are not stopping work technically, they keep on working. How does that look like in terms of those trends in retirement?

[00:08:36] Michelle Munro: It's more of a phased-in approach is what we're seeing. You think about like a generation ago retirement was like a light switch more, turning off the working years, turning on the retirement years. It's now becoming more of a dimmer switch.

[00:08:58] Emily Anonuevo: Because they can't give up the work, they can't give up the salary, the cost of living is going up?

[00:09:03] Michelle Munro: Part of it is because we're living in a more flexible working environment than it was. Looking at the financial reasons, I guess the people who want that more phased-in approach, well, they're concerned about that additional cost of living and it just makes it a little bit easier. They're also thinking more about the experiential things that they'd like that extra money for, we talked about travel, hobbies, even a nicer dinner out once a week, or whatever that is, just making life a little bit easier, being able to afford sort of that retirement lifestyle, if you will. Another one is just talking about financing. You touched upon this. The sandwich generation, supporting ageing parents.

[00:09:59] Emily Anonuevo: Keep on hearing that term more and more. What is that exactly?

[00:10:05] Michelle Munro: Well, it's sandwich so middle-aged people supporting ageing parents, and that could be financially as well as the emotional and physical support. Where we focused some time during the survey is also the supporting adult children. You would expect to be supporting school-aged children but then launching post-secondary, post-schooling adult children, that's where we're seeing a real uptick. Retirees increasingly have supported their adult children financially, as well as pre-retirees who are expecting that and thinking about incorporating that into their retirement plan. An ounce of prevention is worth a pound of cure.

[00:11:02] All of that to say, I've focused a bit on the financial reasons why people would gradually go into retirement, it's also the emotional reasons, staying busy, staying active, social, that sense of purpose and routine, as well as work environment is increasingly becoming more flexible. Back to the financial reasons, what our survey really found is that the reasons behind it, it's not financial necessity, it's financial flexibility.  I think those are good reasons, reasons to thrive in retirement.

[00:11:49] Emily Anonuevo: Are Canadians overall, pre-retirees and those in retirement, feeling positive or negative about retirement? What are they saying?

[00:11:58] Jacqueline Power: They're actually feeling positive. Now, there have been changes over time so it's positive to an extent. 71% of them in this year's survey are feeling positive. Now, take that back 10 years to 2015, 82% at that point were feeling positive, so it is lower. It makes sense, look at the complexity, look at all of the challenges that people are having. While this survey was going on we'd just gone through so much time with very high inflation. That, especially retirees, that really freaks them out. I'm not surprised it's at 72. In all honesty, I wouldn't have been surprised if it was lower than that, to be completely honest.

[00:12:40] Emily Anonuevo: Those positive feelings the survey pointed out are connected to having a written financial plan. Canadians are saying time and time again if they have a written financial plans they feel more positive about retirement. Why is that so important to have that plan laid out Michelle?

[00:12:59] Michelle Munro: Having a written financial plan, for any plan pen to paper just increases the likelihood that you'll achieve your goals. As well, thinking about, okay, we have our written financial plan, it gives you the discipline. Retirement planning, use a golf analogy, it's a long game. It's seemingly small actions done consistently year in, year out, really sets us up for retirement. The cornerstone to that is having a written financial plan. What I also found really interesting in our survey, and we see this year after year after year, is those who have a written financial plan, they feel better financially but it's also emotionally, socially, even physically. That's four pillars of overall well-being. The cornerstone of that is having that written financial plan.

[00:13:57] Emily Anonuevo: That's amazing, and, of course, being in contact with your financial advisor at every stage of your life is really, really helpful. Now, just to round out the conversation, Jacqueline and Michelle, what can investors take away from this report? Investors who are in every sort of step of their investment journey, they see this report, what can they take away from the trends and insights that we have in it? Jacqueline?

[00:14:18] Jacqueline Power: Lots of great information there. It really just helps them understand where we've come and just how different things are now, how much more you need to be making sure that you're planning, that you are working with that financial advisor, that you're thinking about the fact that chances are you're going to be supporting your children in some form at some point. This is something that needs to be planned for.  just keep taking it back to the advisor and then really just making sure that they're working closely with that individual.

[00:14:48] Emily Anonuevo: Michelle, what would you add?

[00:14:50] Michelle Munro: I would say throughout the report there's something for everybody in there. There's tons of nuggets and some of it will be like, oh. It articulates some of the concerns that we're having as a society so you don't feel like you're the only one. It also gives lots of different tidbits about what are the components of a plan, how do you start pulling that together, thinking about taking that plan one step further and what about estate planning? It's really like crib to cradle, thinking about retirement planning. For our viewers who haven't started the best time to start is today and check out the report.

[00:15:35] Emily Anonuevo: Excellent. Jacqueline, Michelle, thank you so much for being here, sharing these fantastic insights and trends in our annual Fidelity report. Really, really appreciate your time. Thank you.

[00:15:44] Michelle Munro: Thanks for having us. It's a pleasure.

[00:15:46] Jacqueline Power: Thanks so much.

[00:15:47] Emily Anonuevo: Now, to get a copy of the Retirement Report just visit fidelity.ca. There you can also find a full investor education section. Check out our investor articles, sign up for the Upside newsletter and get more information about upcoming live webcasts and on-demand videos. Thanks so much for watching and we'll see you next time on the Upside.