How the pandemic could impact Canadians’ retirement plans
In 2020, the most severe health complications from COVID-19 have hit Canadians aged 75 and over. By and large though, seniors appear to be weathering the pandemic’s financial storm better than younger generations. It makes sense; retirees are not reliant on employment income to meet their day-to-day financial needs, so the job losses resulting from business shutdowns had far less financial impact on them. Older Canadians also tend to have significantly less debt than younger cohorts.
"Seniors appear to be weathering the pandemic’s financial storm better than younger generations as they are far less reliant on employment income to meet their day-to-day financial needs."
As The Globe and Mail reported, younger, working Canadians have been more vulnerable to the financial impact of the pandemic. For younger savers, the pandemic disruption could interrupt their ability to sock away any savings toward retirement and impact their long-term potential for wealth accumulation. Many investors in their forties or fifties have had adult children move home, putting pressure on their retirement savings – at a time that would otherwise be their highest income-earning years. Canadians nearing retirement may have had their investment values negatively impacted by market volatility, just when they need to adjust to receiving a retirement income from their accumulated savings.
The COVID disruption has created new considerations for many Canadians regarding the timing of, and saving for, retirement. One relates to health. Older or immunocompromised workers may view their usual employment as too much of a health risk. Some may take early retirement but opting to receive pension payments even a year or two early could reduce their retirement income in the long term.
Another consideration for Canadians’ retirement savings is job loss or job interruption. Though the unemployment rate has improved since its record-high in May (with 2.6 million Canadians out of work) there were still 1.8 million people unemployed in September. Because of income loss or lower savings rates, one survey indicates that as much as one-third of those aged 55 to 64 now plan to delay retirement.
“One-third of Canadian’s aged 55 to 64 plan to delay retirement as a result of the loss of income or lower savings in 2020.”
Despite the change and uncertainty during 2020, it’s not all “doom and gloom,” particularly when it comes to financial markets. Volatility often provides unique investment opportunities. From a joint survey in May with the Angus Reid Institute, we found that Canadians were surprisingly optimistic about the markets over the next year in spite of the pandemic. Notably, survey responses showed that most Canadian investors are sticking to their guns. Asked if COVID-19 had changed their investing strategy, 76% responded “no,” displaying an encouraging level of confidence in their existing long-term investment plans. That long-term approach to investing, with a diversified portfolio and adequate cash reserves to ride out emergencies and market dips, should bode well for their retirement savings plans.