January 1, 2024

Is post-retirement work really a way to address a lack of savings?

We’ve long been told that if we haven’t saved enough for retirement, the “solution” is to just keep working, right?

A column in The Globe and Mail by Rob Carrick raises questions about whether the “just keep working” strategy is really helping today’s retirees.

Carrick writes that, for starters, the only folks who tend to work past age 65 these days are “very well-off men,” and that for the rest, retirement income comes from “the Canada Pension Plan (CPP), Old Age Security (OAS), personal investments, and a mix of pensions and registered retirement savings…. (only) a few will have employment income.”

Research from social-policy consultancy Open Policy Ontario seem to back this up, he writes.

“Summed up, the numbers highlight the importance of personal retirement saving and call into question the idea of backstopping your savings by working in retirement,” writes Carrick.

Researchers from Open Policy Ontario divided “income composition for people aged 65 and over” into two groups, or deciles.

For the first four groups – those with retirement incomes ranging from $12,500 to $24,800 – “CPP, OAS and the Guaranteed Income Supplement supply the most income,” the researchers found.

As incomes rise through the groups, “personal savings through company pensions, registered retirement savings plans (RRSPs), and registered retirement income funds (RRIFs) become progressively more important,” Carrick notes. By the ninth group, for folks with income at $66,700, these savings add up to more than 49 per cent of income, he adds.

Lots of math here, but the message is that those with retirement savings had a significantly higher income in retirement than those without, whether those savings were in a company pension plan, from personal investments, and/or registered sources.

Another recent study concluded that a lack of retirement savings could lead to the need for “lifestyle changes” by retirees – cutting back on what they expected to do, and/or where to live, in retirement, Carrick observes.

“The Open Policy numbers support this finding by documenting the importance of personal savings in rounding out CPP and OAS, and raising questions about contributions from working,” he explains. What he is saying is that while many talk about working past age 65 due to a lack of savings, few are actually doing it.

“Working past the age of 65 is an obvious solution for people who cannot save as much as they ideally should. But the Open Policy numbers lead to a surprising conclusion about people working in retirement: For the most part, they’re not generating much income,” Carrick writes.

“Employment earnings account for three per cent to nine per cent of the pie for middle earners 65 and up, which means people making $29,000 to $42,900. The richest seniors, those in the 10th decile with a median income of $99,900, get 26 per cent of their income from employment. Men aged 65 and up in the 10th decile got 33 per cent of their income from employment, compared with just 14 per cent for women in the same demographic,” he continues.

Carrick concludes his column with some important advice.

“The more you save on your own, the more latitude you have in retirement for setting a lifestyle. Working longer can help cover for lower savings, but the Open Policy analysis suggests it’s not generating a lot of income for most of today’s retirees. This will very likely change for retirees of the future,” he notes.

So, what’s the takeaway? If you have a company pension plan or group savings arrangement, make sure you are signed up and contributing to the max. If you don’t, have a hard look at the Saskatchewan Pension Plan. It’s an open, defined contribution plan that any Canadian with RRSP room can join.

Once you’re in, SPP does all the hard stuff for you, investing your savings in a professionally managed, low-cost investment pool, and then giving you retirement income options when you retire, including the chance of a lifetime annuity, or flexible income via our Variable Benefit.

Let your employer know about SPP – many across the country have begun offering SPP as their company’s retirement program!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.

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