Are Your Employees Ready for Retirement? Are You?
Retirement is a fairly new concept, a historical blip that has really only been around for a couple of generations. It used to be you worked until you died — from a heart attack, childbirth, the flu, or a whole host of illnesses and afflictions that, thanks to leaps in healthcare and improved living conditions, simply don’t exist anymore.
Yet, even though it’s a relatively new concept, we all have a common idea of what “traditional” retirement means: you stop working at 65 to do crosswords, play golf, enjoy senior discounts, dote on your grandchildren, eat dinner at 4 pm and occasionally migrate to warmer climes. This made sense when the age of retirement was more closely aligned with life expectancy.
That’s obviously not the case anymore. Now, for most, there is a whole other stage of life after 65. Most people have a good 20 — or substantially more — years to go. Now retirement can mean pretty much anything, from freedom 55 to working part-time in your 70s.
How are you supposed to prepare financially and psychologically for that? And if that’s not hard enough, how should you help your employees prepare?
A “GREYING” POPULATION
The statistics around retirement tend to incite a general atmosphere of panic, and with good reason.
The population is aging in a historically unprecedented way. The life expectancy at birth of Canadians jumped from 57.1 years of age in 1921 to 81.7 years of age in 2011, according to Statistics Canada data. People are living longer, and that, in combination with the large demographic bubble of baby boomers, is leading to a “greying” of the population. Undoubtedly, this will have consequences.
A recent study from the Fraser Institute, “Canada’s Aging Population and Implications for Government Finances,” estimates that by 2045, increasing costs due to the aging population could lead to federal and provincial deficits of an estimated $143 billion. Another November 2017 report released by the Fraser Institute highlights that Canada is the only G7 country with no plan to increase the retirement age. Britain and Ireland intend to raise the age of eligibility to 68, while France, Germany, Italy and the United States plan to raise the age to 67, and Iceland is moving it to 70. Meanwhile, in Canada, although there is no mandatory retirement, the age of retirement for calculating government pension will remain at 65.
This is just one of countless bad news examples — the news cycle is full of stories about the dire future of retirement and how unprepared Canada and Canadians are for it. A 2014 Conference Board of Canada report, “A Survey of Non-retirees and Retirees in Canada: Retirement Perspectives and Plans,” reveals that 60% of Canadians surveyed believe they have not saved enough for retirement.
If you’re like the majority of Canadian employers, you want to help your employees prepare. A September 2017 Conference Board of Canada report, “Money on the Mind: The Design and Impact of Employer-Sponsored Financial Wellness Programs” states that almost three-quarters of organizations feel responsibility to help their employees with their financial wellness. We spoke with Monica Haberl, Network Manager and Research Associate at The Conference Board of Canada about retirement and financial wellness. Haberl, who co-authored the report, has some tips for how organizations can effectively help their employees with financial wellness.
One of the main takeaways from the study Haberl emphasizes is that “it’s not just about the endgame. It’s not just about that retirement moment. It’s about learning to manage finances throughout the course of one’s career. And that involves debt management, day-to-day budgeting — the retirement contributions are just a part of that.”
Providing employees with financial wellness resources and tools, so that they are equipped to deal with whatever the future might throw at them, is the best way to help them prepare.
Haberl stresses that in addition to financial planning, it’s also important to address the psychological aspects of retirement. “One of the main components that I think is a little more neglected but that is very important for employees involves offering psychological preparation for retirement,” she says.
“It’s important to look at the psychological aspects of retirement … For many employees that may mean working part-time in retirement, and that’s fine if someone is comfortable with that, but not everyone wants to do that either. [It should] be an iterative process to figure out what the best plans are on an individual basis for someone going into retirement.”
A TOUCHY SUBJECT
Financial wellness is a tricky subject to broach. When counselling employees on retirement and financial wellness, it’s important to remember that for most people, finances are a private affair.
“Nobody wants to talk about money, especially with their employer,” Haberl says. “One of the things we would recommend to employers is to normalize the idea of improving financial wellness. Demonstrate to employees that they’re not alone. Regardless of the fact that your circumstances may be unique, the fact that you’re struggling financially or worried about finances is not unique.”
In the interest of maintaining privacy, Haberl suggests that employers partner with their benefits providers. For example, when it comes to pension programs, obviously an employer can’t look at an individual employee’s savings, but a pension provider can provide an aggregate number or baseline demonstrating how an organization is tracking compared with others.
To provide employees with a more personal assessment, Haberl suggests administering a test or quiz to employees to assess their financial preparedness, which will give them a specific, individualized picture of how they can improve. Haberl stresses it’s important to individualize financial wellness education, while still maintaining privacy.
EDUCATION IS ONLY HALF THE BATTLE
Financial literacy and financial education are fantastic, but “it’s important to focus not just on the education piece but on actually inciting behaviour change,” says Haberl.
“We did some case studies, and interviewed some organizations that have fairly sophisticated financial wellness programs, and a lot of them are looking at building that behaviour change. Reminding employees that they have access to matching programs and tools, helping employees to budget, those kind of things really can help incite behaviour change.”
Beyond that, she says that it’s imperative for organizations to consider addressing various demographic groups differently. “Less than half of the organizations that we surveyed are currently doing this, but it is something that’s fairly low-cost with a high benefit — employees that are significantly higher or lower earners often have very different challenges that they’re going through.”
Financial wellness is about doing what you can with what you have. An employee who is the highest wage earner does not necessarily have the biggest retirement fund. If you want to help your employees prepare for retirement, it’s important not to focus just on retirement but on the day-to-day finances, debt management, budgeting and other skills that prepare employees to be able to do the most with what they have, regardless of what the future holds.