Government transfers cover almost 70% of average Canadians' essential
retirement costs, according to Russell Investments' retirement
spending report
TORONTO, June 11 /CNW/ - Where do Canadian retirees derive their income?
How do they spend it? And how much will they need for a financially
healthy retirement? These are some of the questions answered in a new
report by Russell Investments Canada Limited, entitled: "Spending
patterns in retirement" - based on Russell's retirement research and a
detailed analysis of a Statistics Canada survey of household spending.
"We believe that a financially healthy retirement is well within reach
for most Canadians. However, factors such as income level, marital
status, age, and retirement date must be taken into account and planned
for. This latest report was designed to help Canadians be aware of these
factors and stay on top of their retirement goals," says Fred Pinto,
Managing Director of Distribution Services at Russell Investments Canada
Limited.
"At a time when many are planning summer vacations, now is a good time
as any to talk with a financial advisor and further define a retirement
plan that can cover all your future expenses and spending."
On average, over 50% of retirement income comes from government transfers
According to the report, the average annual income of retirees aged 65
to 74 is $35,200. Government transfers such as Canada Pension Plan and
Old Age Security make up $18,300 of that annual income. In comparison,
higher net worth retirees aged 65 to 74 with average annual incomes of
$82,800 received $19,900 in government transfers.
However, these government transfers are generally not sufficient to
cover all of the essentials of retirement - almost 70% coverage for the
average retiree, and 39% for higher-income retirees. For retirees with
annual incomes of $35,200, over $27,100 of that cash flow was needed to
pay for yearly essential expenses. Retirees with incomes of $82,800 a
year spent $51,000, of their income on essentials.
"It's critical to have enough income to cover the essentials of
retirement, such as food, shelter, and transportation. And virtually all
retirees also want to have enough income to cover the lifestyle expenses
that make retirement enjoyable, such as travelling and dining out," says
Pinto.
"More important than what one earns in retirement is determining what
one needs to spend in retirement. That's why Russell's "ELE" retirement
planning solution divides retirement into three distinct spending
categories: Essentials, Lifestyle, and Estate."
Almost 75% of essential expenses for retirees aged 65-74 related to
shelter, transportation, and food
Shelter (37%), transportation (21%), and food (18%) were listed as the
largest essential retirement expenses for those in the 65 to 74 age group.
"To underestimate essentials expenses would be a great risk, since it
represents the bulk of expenses in retirement - all of which will not
necessarily be covered by government transfers," says Pinto.
Top retiree lifestyle expenditures: Travel, dining-out, alcohol
"Once a more precise estimate of essentials expenses is determined,
retirees will have an idea of what is left over for lifestyle expenses,"
says Pinto.
Retirees with average annual incomes of $35,200 spend $7,300 on
lifestyle expenses, while retirees with average incomes of $82,800 spend
$20,900 on lifestyle activities.
According to Russell's report, dining-out and vacationing are the two
largest lifestyle expenditures among retirees aged 65 to 74. However,
lifestyle expenditures vary, and the amount retirees spend on splurges
such as vacations, tobacco products, and gaming/gambling appear more
widespread than money used on essentials.
Declining expenditures in retirement
Russell research also unveiled that 58% of Canadians are "very or
somewhat" concerned about outliving their money 10 years leading up to
retirement. However, once they actually reach their retirement date,
that figure drops to 38% of those who are concerned. Furthermore, only
29% of retirees are overly concerned about outliving their money after
the first and second year of retirement. That number drops to 18% after
10 years into retirement.
"Retirees' sense of financial comfort and well-being can be attributed
to the realization that many household expenses are reduced or
eliminated around the time of retirement, including mortgage payments,
income taxes, and costs associated with raising and educating children.
Another item that is often overlooked is that retirees no longer have
the expense of saving for retirement," explains Pinto.
According to Russell, household expenditures in retirement for those in
the 60-64 age group totaled $38,100 - with $25,000 going to essentials,
$7,600 for lifestyle expenses, and $5,500 earmarked for income tax. The
retirement expenditures drop to $30,300 for the 75-79 age group.
"Even though spending and expenses decline in retirement, it is still
very important to continue to grow your portfolio to protect against
inflation and rising costs such as health care," says Pinto.
"Canadians preparing to retire can feel encouraged knowing that a high
percentage of retirement portfolio returns could be generated through
investments during retirement. That's why it is important to remain
invested in some allocation to equities during your retirement years.
You need to continue to grow your portfolio to protect against inflation
and rising costs such as health care. Keep in mind that it's not the end
of the investment journey when you stop working."
For access to Russell's full "Spending patterns in retirement" report,
please visit
www.myfinanciallyhealthyretirement.com