A great deal of attention is being paid to Millennials (born between 1980-2000) and for good reason. By the year 2020, they will represent approximately 50% of the North American workforce. Their views toward debt management and saving for retirement are important considerations as they begin to dominate as consumer and workplace influencers.
What about the other demographic cohorts in the workforce?
While Baby Boomers (born between 1946-1965) are still part of the workforce, we see their numbers continuing to decline even though Canada has one of the highest percentages of working age people of all G8 countries at 68.5% (age 15-64), according to Catalyst.org.
While their numbers might not be as plentiful, Baby Busters, also known as part of Generation X - the core of them born between 1966 and 1971, represent 2.8 million people in Canada, according to information provided by Statistics Canada (www.12.statcan.gc.ca).
Economic challenges face each workforce demographic, but GenXers have lived through unprecedented economic transformation with large swings in the job market and, since the elimination of mandatory retirement, need to redefine the timing of their own workforce exit strategy. As a result, Baby Busters don't have the same sense of career and retirement as the generations preceeding them. With the impact of larger economic forces, GenXers developed less confidence in their ability to save for the long-term. With so much vying for their dollars earned (mortgage, loads, credit card debt, emergency funds, child's education savings), other financial needs simply take priority over saving for retirement.
With RRSP season upon us, there tends to be an influx of savings-related surveys published annually by various financial instituations to help assertain savings patterns and consumer behaviour. Recently, TD announced the results of their latest survey, which highlighted that more than two-thirds of Canadians between the ages of 35-54 (Gen X) say they're not saving enough for retirement. It is this cohort that says they really need help meeting their financial goals and they feel guilty about not saving enough.
Don't expect to retire on time.
In addition, 25% say not being ready for retirement is keeping them up at night. Also, the majority of this Baby Buster-GenX cohort report that they don't expect to be able to retire on time and 29% anticipate working in some manner during "retirement."
The TD survey sites savings barriers resulting primarily from GenXers' everyday financial demands such as: living expenses, mortgage or rent, as well as childcare costs (61%). These Baby Busters also said they struggle with paying down exsiting debt (42%) and other major unexpected life events like divorce or death of a spouse (19%).
While Millennials (born between 1980-2000) expressed similar worries to those of the Baby Busters, the Millennials or Generation Y have a longer savings runway with peak income earnings years still upon them even though they may feel that saving for the long-term, given all the economic turbulance, seems somewhat less reasonable.
Mindsets and intrinsic motivation
What does all this survey information mean when communicating the importance of saving for retirement and engaging employees in participatory pension and savings programs? It means that demographics influence an employee's personal finance mindset and their attitude toward savings habits.
If Traditionalists (born before 1946) could advise GenXers, they would likely tell them to spend less than they make because after all, "a penny saved is a penny earned". Even though this historically thrifty cohort enjoyed the opportunity for long careers with one employer, they might tell this generation that spending less might mean cutting back on day-to-day expenses. They might encourage them to find a way to contribute regularly to their retirement savings and share that doing something now is better than feeling overwhelmed and giving up on building a nest-egg. They might also reinforce the need to manage both sides of the balance sheet.
It is the simple wisdom of those who travelled the road ahead who can look back with clarity and offer up insights that are tried and true. This approach also works for workplace communication strategies -- look closely at what intrinsically motivates each generation in order to help them better prepare for their financial future, today.
These topics along with others pertaining to workforce trends and their influence on group benefit and pension programs remains an important area of focus for us. We invite you to contact us with questions. We are here to help so that you can focus on what you do best.
It is perhaps a blessing and a challenge to think that we are living longer and healthier lives. As a result of better medical treatment, improved nutrition, and accessibility to medical information, people in Canada and in developed nations can expect to live longer. While living longer in good health is great news, the worry for many facing retirement involves concerns about living beyond one's savings.
The 2007 HALE data (the most recent year data is available), indicates that Canada's life expectancy is 80.7 years with the expectation that people could live in good health until age 73 -- representing 90.5% of life lived in good health. While the medium may be age 80 for life expectancy, many are living well into their 90s and those that reach the Centenarian milestone are growing. Statistics Canada's projections indicate that by 2031, there could be more than 17,000 people who will celebrate their 100th birthday. By 2061, this number should be closer to 80,000.
What does this mean to employers who have benefit plans and employment arrangements designed with the understanding that retirement age remains age 65? Many benefit plans and succession plans (if they exist at all) don't factor in the growing numbers of mature workers with no plans to retire early or at age 65. Many plans were built around the mindset that workers generally retired at age 65. With the abolishment of mandatory retirement in 2006, some employers have yet to adopt a different way of approaching this "grey" cohort of workers.
Back in 1971, the median age of the population was 26.2 years. Then in 2009, it was 39.5. In 2036 it is expected to be between age 42 and 45. As of July 2015, for the first time in history, Canadians 65 and older represented more of the population than those in the under age 15 category. This number represents close to 5.8 million people in a nation of 35 million. While by international standards, the population of 65 and over is comparatively smaller than other G7 nations, it is still a force to be contented with particularly when addressing workforce planning and benefit plan management.
As per the Administration on Aging (AOA), in 2014, persons 65 years or older represented 46.2 million or 14.5% of the U.S. population or 1 in 7 people. In Canada, comparatively, 1 in 6 people are over age 65 and represent 16% of the population. By 2040, this cohort is expected to grow to 21.7% of the U.S. population and this number might be slightly higher in Canada.
Employers are finding they need to address how to handle the mature workforce. Statistics Canada reports that 25% of Canadians are working past the traditional retirement age of 65. Sun Life's Unretirement Index agrees and reports that there is a growing number of Canadians expecting to be working full-time at age 66.
The trend in providing coverage to reflect the needs of this elder cohort isn't keeping in step. A particular focus should be given to benefit plan language and the wording around retirement and age limitations specifically pertaining to life insurance reduction and long-term disability coverage.
More discussion with plan sponsors should involve how they wish to extend coverage and how their benefits philosophy aligns with their core values and mission statement. As we track these important workforce trends, we layer a deep understanding of how they relate to benefits and pension plan funding, administration and management. We invite you to contact us to discuss strategic plans for navigating the waters of benefit provisions for mature workers. We're here to help so you can focus on what you do best.
As I look around my community, I see more retirement and assisted living centres being built. It has been a gentle progression over the last ten years. Canada is slowing becoming a nation of aging people. The construction industry seems to grasp the shifting needs of Canadians and has planned for these changes in their housing requirements, but for some reason, the uptake on moving the emphasis toward communicating investment strategies targeted at decumulation has fallen short.
The statistics are consistent and obvious. In the U.S.,appoximately 10,000 people retire every working day and in Canada, we see about 1500 Canadians doing the same. Yet retirement education continues to focus on wealth generation and accumulation strategics.
We know a lot about the demographic shifts and the influence of the Baby Boomer population (born between 1946-1964). These numbers reflect 4 million people retiring every year over the course of a 19 year period. This translates in the 22.8 percent of Canadians as 65 or older from 2010 onward. Another way of interpreting the data is to compare 1961 stats to 2010 (when the first boomer turned 65). In 1961, the median age in Canada was 26.3 and in 2010, it was 40.6.
Right now, there are more people between age 55 to 64 who are preparing to leave the workforce than there are those planning to enter it. These numbers speak volumes and I believe we need to confront what lies ahead with mindful and strategic consideration. We have time to plan, focus, and emphasize the changing focus of pension plan communications. A practical approach that fully acknowledges the demographics forces at play will honour those who need the guidance and the continuing support.
For years, the pension industry has placed a concerted effort on capital accumulation and growth, but according to Dr. John Por of the Decumulation Institute, by 2022, $2 trillion in financial assets held by various Canadian financial institutions will be converted into retirement income.
Many people feel uncomfortable or awkward about discussing budgeting, saving, or planning for retirement. Perhaps has something to do with acknowledging the aging process, yet we all know that time waits for no man. More information on the views of Canadians on this topic have been captured in the IFEBP's recent white paper entitled, "The Path to Retirement Security in Canada"
The more energy that can be spent on a multi-pronged approach that provides advice, tools, and information related to decumulation tactics during every phase of the savings and retirement planning lifecycle, the better prepared North Americans will be for the time when they need to begin the divestment process.
With equal consideration, employers would benefit from holding pension workshops that provide resources and support for decumulation of investment assets so that plan members aren't facing a dilemma of what to do just a few short months before their retirement date. Just as it takes time to prepare for a decision of this nature, it also warrants equal focus on preparing for decumulation well before retirement.
It's time to make the leap and bring more of a balance to the dialogue and the tools available to help our aging workforce. Please contact us. We're here to help so that you can focus on what you do best.
According to a 2011 report by Human Resources and Skills Development Canada, there are approximately 5 million Canadians aged 65 or older. This number is set to increase to 10.4 million by 2036. For a variety of reasons including harsh financial realities, many seniors will need to remain in the workforce for some time.
What does a benefit plan look like for this age group? Do these "seniors" change the group benefits landscape? Increasingly, employers will be faced with this challenge as they continue to want to offer value for their employees while still keeping a close eye on the costs of their group plan. As employees age, plans experience increases in usage and costs due to age-related health degradation. Another factor to consider as employees age involves termination provisions. Will provisions stay the same or will they need to change based on the needs of an aging workforce?
Employers benefit from understanding their current workforce. The reality is that the Canadian employee landscape finds itself dotted with a mix of four different generations. From Traditionalists (born before 1946) to Generation Y (born after 1980), employers seek to find the right benefit offering to meet the changing needs of their employee base. While Generation X (born after 1964) and Generation Y may be focused more on core health and dental coverage to ensure they have some financial support for braces, etc., employees at the other end of the age spectrum may be interested in other and perhaps more non-traditional benefits such as end-of-life planning services.
The question goes beyond the basic understanding of basis demographic components such as age, sex and family status. Contributing factors relating to the issues impacting employee benefits programs include culture, diversity, and health. Employee needs and expectations vary by age band and demographic grouping. What an employee over age 62 wants from a group plan may vary significantly from the interests of a 25 year old employee.
Another important consideration involves how demographics contribute to what, when, and how employers communicate messages about benefit plans. The way Generation Y employees wish to receive information about their benefits plan may differ significantly from the manner in which a Baby Boomer (born after 1946) wants to access the same information. Generation Y is known as the Digital Generation. They are tech savvy and they leverage social media well whereas many Boomers still prefer face-to-face presentations to learn about programs and benefit offerings.
Finally, employers also benefit from factoring in the cultural element of their workforce. In our multicultural society, our diversity makes us stronger, but it also creates a variety of expectations about the value offered by existing benefits plans. A one-size-fits-all plan finds itself stressed to meet the varying needs of increasingly diverse workforces.
No matter how we look at it, employee workforce demographics play a big role in the design, communication, and value perception of benefit plans. Employers who review and adapt to the changing needs of their workforce will continue to attract and retain talent. For more information about effective ways to achieve the best mix of plans for the specifics of your employee population, please contact us. Our team has the skill and the experience to design benefits packages that will assist in attracting and retaining talent while managing costs well at the same time. We're here to help so you can focus on what you do best.
In Part 1 of Tips to Improve Retirement Readiness for employees, I touched on using quarterly Old Age Security (OAS) announcements as a prompt to think about the importance of saving for retirement.
While this is one simple tactic, there are others that when implemented as part of a plan sponsor's retirement plan communication strategy, the level of awareness, engagement and participation of plan members will increase in tangible ways.
Here are four best practice tips for improving retirement savings outcomes:
Understanding how each generation in the workplace feels about financial planning and saving for retirement, can lead to better tactics for communicating retirement strategies. Encouraging employees with the call to action that it is never to late to start saving for retirement has become a prominent message. Introducing practical retirement planning best practices will ensure increased participation rates and better retirement outcomes.
For help with introducing these tactics and others, please contact us. We're here to help so that you can focus on what you do best.
According to a *2013 Sun Life Canadian Unretirement Index, five years ago, 51 percent of Canadians expected to be retired at age 66. Today, the numbers are about even at 27 percent who expect to be retired with those who plan to keep working doing so - at 26 percent - with the impetus for staying at work being driven out of 'need' as opposed to 'want'. With 63 percent of people saying they have to keep working either full or part-time beyond age 66, the gap has widened substantially in recent years.
The study also revealed that 32 percent of people anticipate working part-time at the age of 66. These numbers reflect a growing trend toward members who plan to delay retirement beyond their earlier expectations.
After the extreme economic downturn in the fall of 2008, the trend toward delayed retirement spiked. Even in the great nation of Canada where we witnessed less hardship and financial ruin compared to our cousins south of the border, our economy remains soft with no immediate signs of strengthening in the near future. The weakened fiscal landscape also plays a part in the "unretirement" of many Canadians.
Prior to 2008, Canadians worked beyond age 66 to keep mentally active and because they simply enjoyed working. Now, 25 percent people are working beyond age 66 to pay for basic living expenses as compared to 11 percent in 2008.
The study also indicated that 59 percent of working Canadians expect to retire with less than $250,000.00 in savings and 38 percent indicated that they will retire with less than $100,000.00 in savings.
Dealing with debt management and paying down credit card balances appears to supersede saving for retirement for many people who feel they will need to work beyond age 66. Staying healthy and being able to pay for medical expenses is just one more worry that is piled on their increasingly troubled financial plate. With these immediate debt management issues, ideas about saving for retirement don't get the air time they deserve. Yet it is not all gloomy as 30 percent of survey respondents reported discussing retirement plans with their spouse or partner. The Sun Life Canadian Unretirement Index also noted that 42 percent of people are investing in a personal registered account, 29 percent have met with a financial advisor and 22 percent have made automatic deposits to an RRSP.
Increasingly, plan sponsors continue to drive home the message that it is never to late for plan members to save for retirement. They also share that saving earlier is better in order to provide plan members with greater personal decision-making control over the situation they'll face when considering working beyond age 66.
There are many innovative ways to communicate messages to plan members regarding the importance of saving for retirement as well as understanding the value of good financial management practices. Please contact us for more information. We're here to help so that you can focus on what you do best.
*2013 Sun Life Canadian Unretirement Index
Dave Dickinson, B.Comm, CFP, CLU, CHFC
Experienced Benefits Specialist ready to optimize your group benefits and pension plans.