According to Statistics Canada and Macrotrends, Canadians’ life expectancy increases by approximately five years with each passing generation. In 2023, the life expectancy was 82 years.
At the same time, more Canadians are retiring or planning to retire sooner than the traditional age of 65, which means they may need to save for a retirement spanning two decades or more.
Unfortunately, many people are struggling to address the risk that they may outlive their savings. In their report, Manulife confirms the longevity challenge and reveals that more than one in two Canadians either believe that their retirement savings aren’t on track, or that they expect to retire later to pay off debt.
Whether it’s because of longer lifespans, global uncertainty, or the increasing cost of living, people are worried about their financial future.
The good news is that most Canadians recognize the importance of saving for retirement. Nearly half say they would prioritize saving for retirement, if their other financial priorities were taken care of. Today’s group retirement plans offer more than just a way to save for retirement. They’re designed to support employees with their unique financial needs at every stage of life.
As a plan sponsor, you can help set members up for success as they plan for a future to look forward to. This article highlights some of the key considerations when helping Canadians plan for lifelong income.
Did you know?
Nearly 60 per cent of Generation Z and millennial workers state that their employer influences their financial decisions.
- Almost half of people aged 42 and under don’t feel knowledgeable about investing.
- 70 per cent of all age groups worry about their finances.
Manulife’s recent glide path analysis looks at how the asset allocation strategies used for target-date funds can help retirement portfolios balance growth with risk, enabling members to plan for longer lifespans.
Their longevity analysis also looks at how the following three pillars of retirement readiness can reduce the risk of employees outliving their savings.
1. Setting an optimal contribution rate
Contribution rates are a crucial factor in plan design, so it’s important to consider the effect that different scenarios can have on your employees. People are often unaware of what their savings timeline should be to meet their financial goals.
Manulife’s research shows that the optimal contribution rate for reducing the risk of outliving savings is 15 per cent. A contribution rate of 5 per cent increases the risk of outliving savings by 84 per cent.
2. The power of the accumulation period
When it comes to financing a retirement that now spans decades, time is of the essence. Studies show that delaying retirement savings by 10 years can result in a 47 per cent loss in cumulative growth.
To encourage early and consistent saving, sponsors should consider setting up matching programs that can help set their employees up for success.
3. Choosing the right investment approach
Canadians often opt for a moderate to conservative approach to investing. One reason for this may be a lack of awareness about investing. Those who are more conservative in their investments are often unaware of the impact this could have on their long-term savings.
Since successful retirement planning requires knowledge of investments that not all employees may have, they may find it useful to seek the advice of a financial advisor when navigating the various investment options that could optimize their savings.
What plan sponsors can do
Many Canadians look to their employer for financial guidance, whether that means access to savings plans, education on financial resilience, or personalized support through financial advisors (if applicable with their plan).
Understanding the support needed by your members is key to offering meaningful financial resources. By tailoring support to those needs, you can help alleviate their financial stress, improve their financial literacy, and boost their retirement preparedness.
Get a snapshot of the unique ways each generation of employees can be supported at every stage of their savings journey.
Read more on how you as a plan sponsor can improve your retirement investment offerings and help members secure their financial future against longevity.
Creating plans that account for longer lifespans can be challenging. Work with your advisor and group retirement savings provider to provide relevant, actionable and timely support to help employees through these challenges.
Benefits Alliance thanks Manulife, a platinum preferred solutions provider, for contributing this article.