1 The Future of Retirement Life after work? Canada Report
3 Contents Foreword by HSBC Introduction Key findings Part 1 The transition to retirement Part 2 Retirement aspirations versus reality Part 3 Leaving a legacy Part 4 Income, spending and saving in retirement Part 5 Practical steps towards a better retirement 3
4 Foreword Welcome by HSBC At HSBC, our purpose is to help customers fulfil their hopes and dreams and realise their ambitions, for themselves and their families, by enabling them not only to manage their financial affairs today but also to plan for their long-term financial future. I am therefore delighted to introduce the latest report in The Future of Retirement series of independent global research studies, commissioned by HSBC. Life after work? is our ninth report and compares the real-life experience of today s retirees with the views and expectations of those still working towards retirement. With the benefit of this hindsight, the report explores key retirement issues including transitioning into retirement, ensuring an adequate post-retirement income, leaving a legacy for future generations and achieving later life aspirations. It also includes some practical steps that people can take to help secure a more comfortable retirement. In this report we can see how a new retirement landscape is slowly emerging. The desire to live a full life after work can be seen in the widely held aspirations for healthy and prosperous retirement. People also aspire to leave a positive financial legacy for their children and grandchildren, during retirement and through inheritances. Yet such goals are being put at risk by a failure to prepare adequately. Indeed, many of those in retirement regret not having saved more when they were younger, or having retired too soon, and share the impact those decisions are having on achieving their retirement aspirations. I hope that the revealing insights in this report, and the practical lessons shared by today s retirees, will encourage everyone to take the necessary steps towards a more comfortable retirement. Simon Williams Group Head of Wealth Management, HSBC 4 The Future of Retirement Life after work?
5 Introduction The Future of Retirement is a world-leading independent research study into global retirement trends, commissioned by HSBC. It provides authoritative insights into the key issues associated with ageing populations and increasing life expectancy around the world. The latest global report, Life after work?, is the ninth in the series and is based on a survey of more than 16,000 people in 15 countries conducted between July 2012 and April While previous Future of Retirement reports have largely focused on how people plan and save for a comfortable retirement, this report looks at the process of retiring itself, and compares the real-life experiences of people in retirement with the expectations of those of working age. This country report, based on the views of over 1,000 respondents, highlights the main findings about living in retirement and the implications for people saving for retirement. The first part focuses on the transition from working to retirement and the prevalence of semi-retirement. The second part explores how people s expectations of retirement compare with the reality of living in retirement, how well current retirees are prepared for their retirement, and what is the best financial advice that they have ever received. The third part takes a closer look at various forms of legacy, including loan and gift giving, the funding of others during retirement, and inheritance. The fourth part analyses what people are earning, spending and saving in retirement, and where this money comes from. The final part outlines some practical steps that people can take to improve their financial well-being in later life. Unless otherwise stated, the data is country-specific, figures are rounded to the nearest whole number and monetary values are expressed in local currency. The global report, other country reports and all previous reports are available on Since The Future of Retirement programme began in 2005, more than 125,000 people worldwide have been surveyed
6 Key findings One-in-six (17%) people who are not fully retired, expect they will never be able to afford to retire from all paid employment. Working age people expect to retire on average at 63, two years older than their parents, who on retired average at 61. Over a quarter (26%) of year olds have semi-retired, and two-fifths (41%) of year olds expect to do so. Of the retirees who have been unable to achieve all their retirement aspirations, more than half (54%) cite having less money to live on than envisaged as the reason, while a third (33%) blame health issues. Encouragingly, more than half (54%) of today s retirees say that their preparations for retirement turned out to be at least adequate. On the other hand, two-fifths (40%) did not prepare adequately: of these, two-fifths (40%) only realised this at or after entering retirement and nearly half (47%) do not think they will ever make up this shortfall. When retirees were asked about the best financial advice they have ever received, the most popular answer was Start saving at an early age (chosen by 57%), followed by Don t spend what you don t have (53%) and Start saving a small amount regularly (51%). The majority of both those fully retired (81%) and not fully retired (60%) have never received a significant financial gift or loan from parents or relatives. A quarter of the working age people who have received such a gift or loan used it to help with their education (26%), paying off debts (26%), housing costs (25%) or the purchase of a major item (26%). Inheritance expectations differ between retirees and working age people: more than half (57%) of retirees expect to leave an inheritance, whereas only two-fifths (39%) of those not fully retired expect to receive one. Entering retirement was accompanied by a fall in income for 72% of retirees. However, this drop in income was not matched by a similar drop in spending, with only 48% experiencing a fall in outgoings in retirement. State and company pensions dominate retirement income provision: amongst retirees, 45% of income comes from state pensions and 31% from company pensions/benefits. 6 The Future of Retirement Life after work?
7 36% expect to semi-retire, on average at age 61 Part 1 The transition to retirement The age at which retirement is taking place is increasing. Working age people say that they will be able to afford to retire on average at 63 whereas their main earning parent retired from all employment on average at 61. Moreover, people would be happy to work on average until age 63, suggesting that today s workers do not resent working for longer than their parents did. These average figures hide the fact that 17% expect never to be able to afford to give up all paid employment. Semi-retirement involves a reduction in working hours but a continuation of some paid employment as one approaches or reaches retirement age. Over two-fifths of those not fully retired either plan to semi-retire (36%) or are already semi-retired (6%). Moreover, whilst over a quarter (26%) of year-olds are already semi-retired, over two-fifths (41%) of younger people (25-34 year-olds) expect to move into semi-retirement before retiring fully. Figure 1: Over a quarter of 55 to 64 year olds are semi-retired, more than two-fifths of younger workers expect to semi-retire Q: Do you expect to move from working full-time into semi-retirement before you retire fully? (Base: Not fully retired) % 27% 23% 33% 30% 38% 28% 34% 15% 32% 27% Don t know No Yes I expect to move into semi-retirement 20 36% 41% 37% 34% 26% Yes I have already moved into semi-retirement 0 6% 2% 2% 4% Average year olds year olds year olds year olds 7
8 Semi-retirement is currently not the norm amongst retirees: only 22% were given the option, although of those who had the option two-thirds (67%) took it up. Of those who plan to semi-retire, many have positive reasons for doing so: nearly half (47%) are motivated by wanting to keep active physically and mentally, 41% because they like working and 35% because they feel it will ease the transition into retirement. However financial issues are also a concern, with nearly a third (32%) planning to semi-retire because they cannot afford to fully retire. Figure 2: The reasons for choosing semi-retirement are largely positive Q: Why do you expect to move or why have you already moved from working full- time into semi-retirement? (Base: Not fully retired) I would like to keep active/keep my brain alert I like working and want to continue in some capacity I would like an easy transition into retirement I cannot afford to retire full time I need to bridge a shortfall in retirement income I no longer need to work full time I am still/will be paying off my mortgage I am still/will be paying off other debts Health reasons/physical demands of my work My household expenditure is higher than I envisaged I have/will have family members to support past normal retirement age Other reason Don t know 2% 4% 7% 15% 15% 14% 12% 17% 23% 32% 35 % % 47% 17% expect never to be able to afford to fully retire 8 The Future of Retirement Life after work?
9 40% of retirees say that financially they have not prepared adequately or at all for a comfortable retirement Part 2 Retirement aspirations versus reality Retirement is the life stage when many people expect to have more free time, have no dependents to look after and achieve their later life aspirations. However, the reality of retirement does not always live up to peoples hopes: for example, extensive travel is a key retirement aspiration, but 31% say they have not achieved this aspiration. More modest aspirations such as spending more time with friends and family (achieved by 56%) and home improvements and gardening (45%) are much more likely to be realised. Figure 3: Retirees are only achieving some of their retirement aspirations Q: Many people have specific hopes and aspirations for their retirement. Which, if any, of the following have you been able to realise since retiring? Q: Which, if any, of the following hopes and aspirations have you been unable to realise since retiring? (Base: Fully retired) Spending more time with friends and family Home improvements/gardening Taking more exercise/playing more sport Frequent holidays Charity/voluntary work Extensive travel Buying a new car/other expensive item Learning a new skill/hobby Continuing to work to some extent Further education Starting a business Living abroad Writing a book Learning a foreign language None of these Don t know 3% 4% 3% 2% 1% 4% 6% 13% 13% 12% 13% 11% 11% 12% 11% 14% 15% 17% 17% 20% 23% 21% 20% % 25% 30% 31% 34% 36% 36% 45% 56% Aspiration achieved Aspiration not achieved 9
10 57% of retirees say that Start saving at an early age is the best financial advice they have ever received When asked why they have not been able to realise all their later life hopes and aspirations, retirees most often cite having less money to live on than they envisaged (54%), whilst a third (33%) blame health reasons and 22% state it is because they have less time than they thought they would. Of those who have less money than envisaged to realise their aspirations, three-quarters (74%) regret they did not save more. Over half (55%) of working age people say that financially they are not preparing adequately or at all for a comfortable retirement. In contrast, two-fifths (40%) of retirees think that they failed to prepare adequately (28%) or at all (11%) for a comfortable retirement. Amongst this group of retirees, two-fifths (40%) only realised their preparations were insufficient at or after entering retirement, and 47% do not think that they will ever be able to make up this shortfall. On a more positive note, 54% of retirees think that they are prepared at least adequately for retirement, although it is difficult to assess whether the extra healthcare costs associated with frail old age have been fully considered. Therefore, even those who believe they are prepared for a comfortable retirement should nevertheless regularly review their situation during retirement. Given that a lack of adequate preparation can be an obstacle to realising retirement aspirations, we asked retirees to look back at the best financial advice they have ever received. Start saving at an early age was the most popular piece of advice (chosen by 57%), followed by Don t spend what you don t have (53%) and Start saving a small amount regularly (51%). Figure 4: Two-fifths of retirees think they did not prepare adequately or at all for a comfortable retirement Q: Overall, financially do you think that you prepared adequately for a comfortable retirement? (Base: Fully retired) More than adequately About adequately Not adequately Not at all Don t know 11% 6% 11% 28% 43% Figure 5: Start saving at an early age is the best financial advice retirees have ever received Q: People sometimes say If only I knew then what I know now. Which, if any, of the following would you say is the best financial advice you have ever received? (Base: Fully retired) Start saving at an early age Don t spend what you don t have Start saving a small amount regularly Buy your own home as soon as you can afford to Buy only what you need Develop a financial plan for the future Save as much money as you can Obtain some professional financial advice Save up to buy something that you can t afford at the time Neither a borrower nor a lender be Invest in property Live for today rather than tomorrow Stick to low/lower risk savings Try high/higher return investments Other advice Don t know/can t recall 10 The Future of Retirement Life after work? 2% 2% 6% 12% 11% 21% 19% 31% 29% 43% 40% 37% 53% 51% % 57%
11 57% of retirees expect to leave an inheritance to their children Part 3 Leaving a legacy An important goal for many retirees is to leave a legacy to their children or other relatives, which often takes the form of a financial gift, loan or inheritance. This assistance from parents and older relatives can be very helpful to younger people in achieving important goals such as higher education or home ownership. However, receiving a significant financial gift or loan from parents is not the norm, with only 23% of the working age population having received such a gift and 15% receiving a significant loan, while just 17% of retirees have themselves benefitted from a gift and just 1% from a loan. Gifts or loans from relatives to younger people (25-34 year olds) are a little more common: 27% have received a gift, 18% a loan. Among working age people who have received a significant gift or loan, a quarter (25%) used it to help with the cost of housing (rent, deposit or mortgage repayments), whilst similar proportions used it to fund their education (26%), purchase a major item such as a car (26%), or to pay off their debts (26%). Younger people (25-34 year olds) are unsurprisingly more likely than average to receive gifts or loans to fund their education. Where gifts or loans are received, they can be of considerable value, with a total median value of $22,775 Canadian. However, despite the relative generosity of these gifts, 51% of working age recipients say it made no difference to their ability to save for retirement. Figure 6: Working age people are more likely than retirees to have received a significant financial gift or loan 81% 60% Q: Did/have your parents or other relatives ever given you a significant 100 financial gift or loan? (Base: All respondents) Fully retired Not fully retired % 17% 23% 1% 2% 4% Yes gift Yes loan No Don t know 11
12 Inheritance is another way of leaving a financial legacy to children. Surprisingly, there are more retirees expecting to leave an inheritance (57%) than there are non-retirees expecting to receive one (39%). Only a small number (10%) of non-retirees have already received an inheritance. Inheritances are often used to fund longer term financial goals such as retirement: of non-retirees expecting to receive an inheritance (or who have already received one), 62% expect it to at least partly fund their retirement, with 11% expecting it to completely fund it. The median inheritance expected by working age people is $77,213, less than half of the amount that retirees are expecting to leave ($175,541). This difference can be explained in part by the fact that inheritances are often divided between more than one beneficiary. Figure 7: More retirees expect to leave an inheritance than younger people expect to receive one Q: Do you expect to leave an inheritance to your children? (Base: Fully retired) Q: In total, how much do you expect to leave in inheritances to your children including the value of any property, cash, etc? (Base: Fully retired) Q: Do you expect to receive an inheritance? (Base: Not fully retired) Q: In total, how much have you received and/or do you expect to receive in inheritances, including the value of any property, cash, etc? (Base: Not fully retired) Fully retired people expecting to leave an inheritance Working age people expecting to receive an inheritance Proportion of people Median value Proportion of people Median value 57% $175,541 Canadian 39% $77,213 Canadian Figure 8: Funding a dependent while in retirement is rare Q: Apart from you and your partner (if applicable), who of the following are you funding or do you expect to fund to a significant extent during your retirement? (Base: Fully retired) Q: Apart from you and your partner (if applicable), who of the following do you expect to fund to a significant extent once you are fully retired? (Base: Not fully retired) No one 52% 81% My children 7% 18% My grandchildren 4% 5% My parents 1% 9% Other dependents Charitable causes Don t know 2% 1% 3% 3% 12 The Future of Retirement Life after work? 6% 21% Fully retired Not fully retired
13 Another way that people can create a financial legacy in retirement is by funding a dependent: these are most likely be children but could also be grandchildren or even elderly parents. Funding dependents in retirement is relatively rare, with over four-fifths (81%) of today s retirees not doing so. Whilst over half (52%) of working age people do not expect to be funding dependents in retirement, more than a quarter (27%) expect to do so. These average figures hide a generational trend: 25% of year olds expect to still be funding their children in retirement, compared to just 6% of year olds. 13% of retirees are significantly funding other family members 13
14 Part 4 Income, spending and saving in retirement A major consequence of retirement is that income is likely to fall considerably, compared with beforehand. Nearly three-quarters (72%) of retirees say that their income has fallen in retirement, with 19% saying that their income has fallen by more than half, which contrasts with only 9% of working age people who expect their income to fall by more than half. Perhaps surprisingly, this fall in retirement income is not always matched by a corresponding fall in outgoings: 41% of retirees say that their spending is the same or greater than before. Where expenditure does fall, it does not do so by much: only a small minority (6%) have reduced their outgoings by more than half. Figure 9: For many people, income in retirement is not only lower than before, but also lower than expected Retirement income level vs. pre-retirement 19% 3% 4% 21% Retirement income level vs. expectation 20% 3% 4% 12% Q: Thinking about your income in retirement, how does it compare with your income immediately before you retired? If you moved from full to part-time working prior to retiring, please think about your final income in full time employment. Q: To what extent is your retirement income in line with your expectations BEFORE you retired from full time employment? (Base: Fully retired) 14 The Future of Retirement Life after work? 35% Greater About the same Up to 25% lower 26-50% lower More than 50% lower Don t know 17% 18% A lot more A little more About the same A little less A lot less Don t know 44%
15 This fall in income moving from full-time work into retirement has been anticipated by many, with 44% earning about as much as they expected, and 15% actually earning more. Nevertheless, it is concerning that almost two-fifths (38%) found that they are earning less than they anticipated in retirement, and even those whose retirement income is in line with their expectations face the possibility of extra healthcare costs should they enter frail retirement. Of those earning less than expected in retirement, the most commonly cited reasons are not planning sufficiently for retirement and still having outstanding debt (35% each). A further 31% blame an unexpected event or expense. 72% saw their income fall on retiring, and 19% saw it fall by more than half Figure 10: State and company pensions provide the vast majority of retirement income 120 Q: What proportion of your retirement income is funded from each of the following sources? (Base: Fully retired) % 2% 1% 1% 7% 5% 9% 2% 2% 8% 3% 11% 6% 7% 6% 60 31% 33% 28% Other sources (inheritance, selling a business, family & friends, lottery, windfall etc) Property income and assets, e.g. renting out, equity release, downsizing, sale Investments, e.g. bonds, endowments, shares, unit trusts, mutual funds Cash savings/deposits Personal pension(s) % 41% 51% Company pension(s) State pension(s)/benefits 0 Retirees Male retirees Female retirees The research also looked at where retirement income is coming from. The largest proportion of the average retiree s income comes from state pensions and benefits (45%), with most of the rest (31%) coming from company pensions. Working age people also expect a large proportion of income to come from the state (34%), although they think only 19% of their income will come from company pensions. Pre-retirees expect a further 13% to come from personal pensions, 10% from cash savings and deposits, and 10% from other investments. Male and female retirees have somewhat different retirement income sources, with women taking half (51%) of their income from the state (compared with 41% for men), reflecting differing employment patterns in the past for these two groups. 15
16 Part 5 Practical steps towards a better retirement Here are some important insights and practical actions, based on the global research findings, which may help today s retirement savers plan a better financial future for themselves. Action 1. Don t rush into retirement There is a view among retired people that they might have been too hasty in giving up paid employment. Nearly two-thirds (64%) who entered semi-retirement wished that they had stayed in full time employment longer. This regret is largely for positive reasons, with many retired people seeing work as an important means of keeping the body and mind active. Action 2. Don t rely on one source of retirement income Current retirees have three different sources of retirement income on average, wisely choosing not to generate all of their income from one place. Spreading their sources of retirement income and associated risks means that not all their eggs are in one basket. Action 3. Plan your retirement with family in mind Rather than family ties loosening in future, the family will continue to be a major consideration in retirement planning, and may even grow in importance for the next generation. While many people (40%) aspire to travel extensively during their retirement, nearly half (49%) of current workers expect to have some financial responsibilities towards others even when they are themselves retired. This includes ongoing financial responsibilities for their adult children as well as supporting frail elderly parents. Action 4. Be realistic about your retirement outgoings Many working people assume that their income needs will fall once they enter retirement. Yet 52% of people in retirement have seen no reduction in their outgoings, and 17% have seen their outgoings increase. Although people are familiar with the concept of increasing life expectancy, the consequent increase in later life medical and nursing care costs may not be well understood as people are still not doing enough to prepare themselves for these potential costs. 16 The Future of Retirement Life after work?
17 52% saw their outgoings stay the same or increase on retiring
18 HSBC Insurance Holdings Limited 2013 All rights reserved. Excerpts from this report may be used or quoted, provided they are accompanied by the following attribution: Reproduced with permission from The Future of Retirement, published in 2013 by HSBC Insurance Holdings Limited, London. Published by HSBC Insurance Holdings Limited, London Designed and produced by Global Publishing Services and Cicero-Group HSBC Insurance Holdings Limited 8 Canada Square London E14 5HQ