Want a healthier retirement? Prepare.
Originally published in the September 2013 edition of Benefits and Pensions Monitor
by Jeff Aarssen, Vice-President, Group Retirement Services Sales & Marketing
Some studies suggest retirement—or at least, complete retirement—is a health hazard.
A UK study published earlier this year found retirees are about 60 per cent more likely to have at least one physical ailment and about 40 per cent more prone to depression than seniors who continue working (Sahlgren, 2013).1 A 2009 U.S. study found retirees who take on post-retirement jobs related to their previous careers experience better mental health than those who retire fully (Yujie, 2009).2 The same couldn’t be said for those who chose unrelated work.
So should retirement be delayed as long as possible? Probably not since the health effect of retirement isn’t completely understood and many variables influence it. Instead, plan members need to be better prepared—not just financially, but also emotionally.
Factors affecting ability to retire
Statistics Canada says the expected working life of average Canadians increased by nearly three years since 1997 (Carrière, 2011).3 While the 2008 financial crisis and economic slowdown may have prompted some Canadians to postpone retirement, Statscan notes a longer working life isn’t a new trend, having begun well before those events.
Many factors affect a worker’s plans for retirement. One is a longer life span for Canadians. As the average age of the population increases, a one-to-one ratio of work to retirement years isn’t realistic. Morneau Shepell recently estimated that ratio at 1:1 in the public sector and 1.5:1 in the private sector (Marr, 2013).4
Record levels of household debt may contribute to delaying retirement (Grant, 2011).5 Today, one-third of retirees age 55 and over have some debt (Statistics Canada, 2011).6 Debt is often problematic, if not paid off before retirement, since repayment can be more difficult on a reduced income.
Another important factor that may be contributing to postponing retirement is emotional readiness.
The group retirement industry has excelled at developing tools and support to help plan members address the financial aspects of retirement. Now, we need to work with advisors and plan sponsors to help plan members work through the emotional side of retirement.
Feeling ready
Being prepared for retirement is more than a savings plan. It’s about being emotionally ready for a significant lifestyle change. Members need to plan their lives after retirement, possibly engaging family, friends, and healthcare providers along the way. Planning for part-time work or active volunteer opportunities may also be part of an overall retirement plan. The 2012 Capital Accumulation Plan (CAP) Benchmark Report found many would-be retirees aren’t receiving retirement transition support from their employer. There’s an opportunity for advisors and plan sponsors to add value by providing plan members more than financial advice.
A 2011 U.S. study by Ameriprise Financial on the attitudinal and behavioural stages that occur before and during retirement7 suggests workers are likely to go through six distinct emotional stages:
Imagination stage (six or more years pre-retirement)
At this stage, some members begin to imagine retirement. But if they have dependants, such as children in university or aging parents, retirement may not be a top priority. Many members don’t know how much money they’ll need to enjoy their dream retirement. In fact, the 2012 Survey of Capital Accumulation Plan (CAP) Members shows only 21 per cent of members have a formal plan outlining at what age they’ll retire and the amount of money they’ll need.
Further, while retirement means different things to different people, many retirement conversations focus on money. While it’s important, advisors and plan sponsors need to realize money doesn’t motivate everyone. Personal motivators can be just as powerful to get some serious retirement planning accomplished. These motivators may include freedom, independence, family harmony, part-time employment, or focusing on a hobby.
Hesitation stage (three to five years pre-retirement)
Hesitation occurs when a plan member questions his or her desire to retire, and gets mired in doubt or indecision. This emotional state stops them from taking steps to ensure the adequacy of their retirement income.
Anxiety results when a plan member has the vision of what he or she wants, and the desire to achieve it, but not the tools to achieve it. There’s no shortage of financial planning tools for plan sponsors to offer their members (retirement calculators, face-to-face meetings, etc.). However, support for emotional preparedness is a relatively new concept, with fewer resources available.
Anticipation stage (two years pre-retirement)
Workers begin to anticipate how their lives will change a year or two from now. At this point, practicing living off the target retirement income is a good idea to gain confidence that they have a realistic budget and to make necessary adjustments.
For those who are confident they’ve achieved their retirement plan objectives, excitement builds as the big day approaches.
Realization stage (Retirement day and one year post-retirement)
You might have heard, "A change is as good as a rest." In the first year of retirement, people get both.
During this time many people are enthusiastic, but they also feel less empowered because of how the 2008-2009 recession has affected their attitude and perspective. They still worry about having enough money. However, research shows members are more optimistic when they’re working with a financial advisor.
Reorientation stage (two to 15 years post-retirement)
Members adjust to their new lifestyle, develop routines, and find ways to manage any earlier feelings of disappointment. Happiness increases in this stage and those working with an advisor generally feel more confident.
Reconciliation stage (16+ years post-retirement)
This sixth and final stage takes place after 16 years of retirement. Many people continue to be happy. However, there’s more concern about personal health and individuals begin to lose family and friends.
What sponsors can do to help
While plan sponsors don’t wish to increase their fiduciary obligations or costs, there’s a growing trend towards helping plan members transition into retirement. From a corporate social responsibility perspective, some employers feel a duty to ensure the post-retirement well-being of long-standing employees.
A minority of members say they use employer-provided information to make investment decisions, says the 2012 Survey of CAP Members. The challenge remains to engage plan members so they’ll use the right information at the right time. By focusing retirement communications on both emotional preparedness and finances, sponsors may inspire extra interest to move a member from inaction to engagement:
- Many people define their identity by their career. In the Imagination stage, plan sponsors and advisors can discuss personal passions with clients and plan members and encourage them to spend time on their relationships, social networks, hobbies, and other interests well before they retire.
- Generally, members’ confidence in their financial readiness is increased by taking steps to maximize their contributions to their group retirement or savings plan, exploring savings strategies, developing realistic budgets and paying down debt. However, in the Hesitation stage, anxiety can prevent members from taking the steps needed to ensure the adequacy of their retirement income. At this point, information, guidance and resources can help. Sponsors can enhance their education programs by inviting members and their spouses to group or one-on-one sessions. Advisors and plan sponsors can create action lists for clients and plan members to help develop a retirement transition plan. Sponsors can also add lifestyle planning to their group benefits package.
- Leading up to the Realization stage, a range of retirement lifestyle tools can be made available to members, such as financial counseling and specialized content on the sponsor’s intranet. Many plan sponsors can do more for emotional preparedness with tools they have today. For example, pre-retirement plan members could use employee assistance plans to access licensed therapists who offer advice about dealing with lifestyle changes.
- Once employees have reached the Realization stage, advisors and sponsors can help increase employees’ confidence in their financial readiness to retire by continuing to highlight group buying power. Lower fees equals more savings. Show members how much they can save when purchasing an income product from a group plan. There are also online calculators available that illustrate exactly how group plans make a difference.
- In the years leading up to retirement, employees who have used all the resources and supports available to them will ideally be well-positioned to successfully navigate the final Reorientation and Reconciliation stages. As noted previously, those retirees who continue to work with an advisor generally feel more confident.
Although it may seem counter-intuitive, helping plan members prepare financially and emotionally for retirement can actually help plan sponsors retain experienced employees. Investing in pre-retirees’ emotional and lifestyle planning can foster an emotional connection to work which can encourage experienced people to work longer, particularly if they enjoy the environment, the people, and the challenge. If a member’s vision of retirement is to work part-time or consult, the sponsor may also be able to accommodate those arrangements.
Financial readiness
Financial readiness plays a big role in terms of emotional readiness—plan members must first be confident they are on track to achieve their retirement savings goals before they can feel secure about retirement. As an industry, we need to continue to help plan members with retirement planning through planning tools and illustrations, calculators, member sessions, etc.
Once financial considerations have been addressed, lifestyle planning can help with the emotional considerations leading up to and throughout retirement. Lifestyle planning lets members look ahead and consider how they’ll spend their time and create a meaningful new life apart from their current job.
Ultimately, by helping plan members prepare—not just financially, but emotionally—for this major life transition, the retirement savings industry can help Canadians avoid the potential health hazards of retirement.
1. Sahlgren, G. H. (2013). ‘Work Longer, Live Healthier: The relationship between economic activity, health and government policy,’ Institute of Economic Affairs (IEA) Discussion Paper No. 46, 7
2. Yujie, Z., Wang, M., Songqi, L. & Shultz, S. S. (2009). ‘Bridge Employment and Retirees’ Health: A Longitudinal Investigation,’ Journal of Occupational Health Psychology, 4, 374-389
3. Carrière, Y. & Galarneau, D. (2011). Statistics Canada. ‘Delayed Retirement: A New Trend?’, Perspectives on Labour and Income, 75-001-X. http://www.statcan.gc.ca/pub/75-001-x/2011004/article/11578-eng.pdf
4. Marr, G. (2013, February 20). ‘Working longer balances more retirement years,’ Financial Post, http://business.financialpost.com/2013/02/20/working-longer-balances-more-retirement-years/
5. Grant, T. (2011, December 13). ‘Record household debt in Canada triggers alarm,’ Globe and Mail, http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/record-high-household-debt-in-canada-triggers-alarm/article2269210/
6. Marshall, K. (2011). ‘Retiring with debt,’ Perspectives on Labour and Income, 75-001-X, http://www.statcan.gc.ca/pub/75-001-x/2011002/pdf/11428-eng.pdf
7. Ameriprise Financial, (2011). ‘New Retirement Mindscape II: How the economic environment has changed the stages of retirement,’ http://www.ameriprise.com/content/files/AMP_mindscape-ii-study.pdf
