Canadians’ retirement perceptions and behaviours 1

The Canadian Institute of Actuaries (CIA) and the Ontario Securities Commission (OSC) recently released studies regarding perceptions and behaviours of Canadians when it comes to the financial aspects of planning for retirement. The key findings of the CIA study indicate that many Canadians misunderstand certain aspects of retirement planning, potentially leading to a damaging impact on their financial well-being for the later parts of their lives.

These studies present the results of a survey by Canadians, aged 50 to 80, who are either close to retirement or already retired, examining their anticipated concerns and risk preferences with respect to retirement.

Key findings presented in the report include:

• Pre-retirees expect to retire at a later age than retirees have experienced. The expected median retirement age is 65 for pre-retirees versus the actual median retirement age of 60 experienced by current retirees who responded to the survey.

• Sixty-one percent of survey respondents have or expect to have relatively low liquid retirement assets. Ten percent have or expect to have less than $25,000 of liquid retirement assets and do not own their home or other properties.

• Respondents profoundly undervalue life annuities. Eighty-four percent of respondents estimated the price of an annuity at less than half of the actual market price. Furthermore, respondents showed low interest in purchasing annuities at any price due primarily to their views of the associated credit risk and the loss of flexibility, control and financial security.

• In general, respondents lack the understanding of the long-term cumulative impact of inflation on the cost of living. However, there is a dramatic change in their preferences when the cumulative inflation impact is depicted, and they become willing to “pay” more in exchange for inflation protection.

• Bequest (i.e., providing an inheritance) is generally viewed as fairly unimportant.

• The overall attitude towards seeking professional financial advice is positive. Behaviour, however, is found to be strongly related to liquid retirement assets: respondents with low liquid assets show little interest in seeking advice, mainly due to affordability. In general, respondents show high concerns over potential issues such as accessing quality service, conflicts of interest, and fraud.

The findings of the CIA study suggest that Canadians would benefit from plan sponsors implementing interventions or behavioural “nudges” to encourage plan members to engage in retirement education and planning. The study also demonstrates that there are a number of prevalent misperceptions that can lead to damaging results for imminent retirees.