Freedom 55 for Boomers? Unfortunately not. Canada’s average age of retirement is on the rise. The average age across all retirees in Canada was 63.8, rising steadily from 63 years of age in 2014, according Statistics Canada*. Who is working longer – employed or self-employed people? The trends are interesting and speak to the need for proactive planning.
If you guessed that self-employed Canadians seem to be working the longest, you're right. These folks definitely need a contingency plan should they be faced with a disability in their longer work life as they shore up their own retirement funding. Here’s how the retirement age differences break down:
Public Sector Employees. The least amount of change in the average retirement age from 2014 to 2018 is the public sector employees. With slight fluctuations over the five years, it has held relatively steady at 61.5 in 2014, moving up to 61.7 in 2018. This isn’t entirely surprising, as many public sector employees have pensions and are not necessarily responsible for accumulating their entire retirement savings.
Private Sector Employees. The average age of retirement for private-sector employees has also risen from 63.3 in 2014 to 64.4 in 2018. This has not been a steady rise and has had some fluctuation.
Self-Employed People. It is when we look at the average age of retirement of self-employed Canadians that we see a big difference. In 2014, the average age of retirement was 66.4 for self-employed Canadians.
This isn’t entirely surprising, as historically self-employed Canadians retire later in life. As of 2018, the average age has risen to 67.7, getting as high as 68.1 years of age in 2016. There could be a few contributing factors to the delayed retirements among the self-employed.
1. Retirement savings – Self-employed individuals are responsible for their entire retirement savings. With inflation, saving the required amount to support individuals through 20+ years of retirement has become increasingly hard. $1.00 just doesn’t go as far as it used to. In fact, due to inflation, $110,000 in 2019 will likely be equivalent to about $61,000 in 2034 . Tax-efficient investments, savings, and strategy can help your money go further, and when one is on the hook for their entire retirement savings, it can make a huge difference as to when one is able to retire.
2. CPP contributions – Self-employed Canadians contribute both portions to CPP. So, while private and public sector employees contribute 2.54% of their income to CPP, self-employed individuals must also contribute the employer portion, meaning they contribute a whopping 5.1% of their income to CPP. This can make a significant impact on one’s ability to save and invest for their retirement outside of CPP.
3. Succession-planning – Many self-employed Canadians are reliant on the equity built into their business for their retirement savings. A succession plan and the growth and building of the business toward that succession plan can make or break the owner’s retirement plans.
What advisors can do. How does one address these three areas to help ensure timely retirement that Canadians can enjoy? One way is to get the latest skills and knowledge by attending the Distinguished Advisor Conference November 10-13 in Puerto Vallarta. Join speakers Joanne Sigurdson and Jenifer Bartman for their topic on Day 3— Leadership Required: Defusing the Family Business Time Bomb .
Back on the ground at home, advisors can help their clients, whether they’re in the public or private sector or self-employed, to develop a feasible and tax-efficient savings strategy. Whether your client is a Millennial and just starting their retirement savings, a Gen-x employee looking to supplement their pension and CPP, or a self-employed Boomer wanting to retire in the next five years, advisors can develop a plan to make their client’s vision for retirement a reality.
It’s also important to bring up the importance of succession planning to your self-employed clients. It’s never too early to start planning, and that starts with the building of one’s business. The equity one builds into their business can make all the difference in their ability to retire, and a succession plan in place allows your client to work towards a goal that they can envision— in a time when more and more Canadians are having a harder time envisioning retirement, this can make all the difference.
Additional Educational Resources: Attend DAC and at the same time, encourage your self-employed clients to attend the Business Builder Retreat in Puerto Vallarta, Mexico this November 9 & 10. Last year’s attendees experienced a very unique educational event designed especially for enterprising business owners who are on an exponential growth path.
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