Blog

ASI is a proud sponsor of Benefits Canada’s 2024 CAP Member Survey, and I was a panelist on a webcast where we discussed the results of the survey.

The survey is aimed at members of workplace Capital Accumulation Plans (i.e. Group RRSPs and registered Defined Contribution pension plans) and being a math nerd I’m always eager to dive into the results seeking insights.

More Thinking about Delaying CPP/QPP

It looks like the recent messaging to consider delaying the collection of CPP/QPP benefits until after age 65 may be getting through.

Currently, only about 5% of Canadians defer their CPP/QPP past age 65; however, the survey indicates that 25% are considering a delay when they get to retirement, and the number one reason for this delay is to maximize their benefit.  Good work everyone!

The average Canadian is living longer and if you can live off your CAP funds and/or work a bit longer so that you can afford to delay your CPP/QPP, it can pay off in a big way.  In fact, the monthly pension will be 42% higher if you can delay the full five years to age 70.  The prize is a higher guaranteed monthly income which is indexed to inflation.

More Worry They’ll Outlive Their Savings

While I was impressed with the improved understanding of CPP/QPP, I was disappointed that fewer respondents reported an excellent or very good understanding of their workplace CAP (only 27% which is down significantly from 47% in 2007), or understand how to decumulated funds (only 21%), or understand the concept of longevity risk (also only 21%).

The survey asks people when they expect to retire (average of age 63, which is very consistent year-to-year) and how long they expect to live in retirement (average of 30 years, way up from 23 years as recently as 2022).  This means that people are expecting to live until age 93, which is a very conservative guess as the average person who retires at age 65 currently lives until age 84.

This is a bit of good news – bad news.  It’s good that people are conservatively estimating their life expectancy in order to minimize the risk of running out of money; however, the end result is that retirees underspend in retirement and many die with significant money left over.

This has implications not only for the individual who could have enjoyed a higher standard of living in retirement, but also for society as retirees don’t spend enough of their savings on goods and services to support the economy.

Retirees should seriously consider if a portion of their retirement savings should be used to buy an annuity or deferring their CPP/QPP, so they don’t need to worry about outliving their money. 

More Spending Less Saving

The Economist magazine recently published an article [apologies, subscription required] that examined recent spending patterns of the baby boomers who are now retiring in droves.  The article notes that in the USA back in the 1990s retirees between age 65 and 74 behaved as expected and drew down their savings by spending 10% more than they made; however, since 2015 this group are now net savers and put away on average 1% of their income.  Apparently, the figures are very similar in Canada.

Are people underspending in retirement because they’re worried about living too long?  That’s definitely part of the answer as we can see from our survey; however, the article references some research that indicates that many boomers are recognizing how lucky they were to have accumulated significant savings and they want to pass some of this wealth to their children who are struggling with housing costs or other financial ills.  Apparently, inheritances have been rising significantly as a percentage of GDP since the 1990s.

Also, the trauma of the pandemic appears to have had a more significant impact on older people.  According to The Economist, older folks still have not returned to spending money outside of their home at the same rate as younger people.  Tellingly, Olive Garden is reporting that attendance of the over 65 crowd has not recovered like it has for younger dinners looking for unlimited breadsticks, soup and salad.

More Survey Questions

I’m thinking that next year we should add some questions to the survey to better understand people’s motivations for their spending patterns in retirement.  This may provide additional insight as the industry continues to develop decumulation solutions that retirees will hopefully use.

Stay tuned for next year!