The Retirement Income Question - Avoid It At Your Own Peril

"People haven't saved enough for retirement."

There's a lot of research talking about Canadians' lack of retirement savings. It looks like people are buying into those messages too.

Unfortunately though, the information appears to be affecting the would-be retiree's psyche, with troubling results: Half believe they'll exhaust their retirement savings in less than 10 years, but a significant number don't know for sure, and a large number of people won't even consider certain income options.

"This all suggests to me that people are trying to avoid thinking about it," says Investor Education Fund (IEF) president, Tom Hamza.

IEF is the latest institution to release a study, this time looking at household wealth locked into home and property values, home-related debt, and home equity as a possible source of income in retirement.

Their results surprised me.

I've been told, and I've mostly assumed, that most people in the "working stiff" category, over a certain age know exactly how much they have saved, and usually know how much they need, as they count down the days, weeks, and months until they retire.

This particular survey of 1,500 current and former homeowners over the age of 50 (half of whom are already retired), however, found that one out of five (19%) have no idea how much they have saved for retirement. One-quarter have no idea how much they will need to draw from their savings each year in retirement, and one quarter believe they will exhaust their retirement savings in the first five years. "Correcting for non-response," writes Dr. Edwin L. Weinstein of the Brondesbury Group in Toronto, "half of all households believe they will exhaust their retirement savings in the first 10 years."

Half!(?!)

The troubling bit, is that many of these people are guessing. They don't know for sure that they're really in as dire a position as they are. They're simply assuming as much, and many are sticking their heads in the sand in response, avoiding any subsequent action that could help them discover the truth (thus eliminating one of life's great stressors) and correct the course they're on, if need be.

"People avoid difficult things, and they avoid long-term decisions," says Hamza. "This is a difficult, long-term decision. I think that's why people are particularly susceptible to the doom and gloom."

Along with the release of the study, IEF is promoting its retirement savings calculator, developed by applied psychologist, Dr. Ben Barkow. Hamza says he hopes the research will encourage people to really think about their situation, and make an effort to figure it out.

"Do that once, and you'll be in a much better spot to adapt in the future," he says. "The bottom line is that if you sit down, and if you have the right tools, the right information, and do the right planning, it's not impossibly difficult. You'll actually have a solid picture. When you (turn) to the painfully inadequate process of estimating, and feeling like you may or may not have enough money, that's when you really get into trouble."

SEE ALSO:
Moving Out: Home Equity in Retirement

In looking at hard assets, the study confirmed that mortgage debt is one troubling area that Canadians should perhaps pay closer attention to, particularly given that interest rates will inevitably rise at some point in the future: It found one quarter of homeowners expect to have debt on their principal residence at retirement. Only three out of 10 expect to have their homes paid off. For those expecting to retire with home debt, the median value of the amount owing is $71,000.

At the other end, the report's authors say people may in fact have more saved than they realize - in addition to home equity that a lot of people are unwilling to liberate for use in retirement, the report's authors say "we believe the estimate of amount saved is quite low, largely driven by under-estimates of the value of company pension plans."

How Long Will Savings Last?

NOTE: The numbers presented are corrected for non-response, and don't equal 100%.

• One in eight has no clue.

• 25% believe they will exhaust their retirement savings in the first five years.

• Half say their savings will be gone in 10 years.

• One-third guess it will take 11-20 years to exhaust their savings.

• Just one in 10 believe their savings won't run out.

Source: Investor Education Fund and The Brondesbury Group.

Kate McCaffery is a freelance writer in Ontario. Visit mccaffery.ca/kate2.0/ for more information.