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  • Investment Planning

21st Century Retirement vs 20th Century Retirement

July 15, 2021

A whole lot changes in 50 years. Every single major life event has undergone a radical shift between 1971 and 2021. Consider post-secondary education. 1971 was the year that Brown University first began admitting female students; today 53% of their undergraduate students are women. Consider marriage. The average age to get married in 1971 was 22 for women and 24 for men; today it’s 29 for women and 31 for men. Consider children. In 1971, 61% of Canadian families had at least one child; today it’s less than 40%. And finally, consider retirement. Retirement looks a whole lot different in 2021 than it did in 1971. Below we further explore how retirement has changed in the past 50 years.

How we work has changed

“One of the biggest changes we’ve seen is that, historically, people worked until they couldn’t work anymore,” WealthCo Senior Financial Planner and Investment Counsellor Cindy Ackles points out. “People would have one career, they would work for one company, and then maybe eventually retire with a pension and a gold watch.”

That is no longer the case. Workopolis reports that job-hopping is the new normal. It is expected that the average Canadian will hold fifteen jobs throughout the course of their career. Gen Y employees spend, on average, 2.7 years at their jobs. For Gen X workers, this timeframe is increased to 3.4 years. By contrast, nearly 70% of their Baby Boomer parents entered their fifties with employers that they had been with for at least twelve years.

It’s not just job-hopping that is on the rise, more than ever people are switching careers. Only 24% of Canadians report having stayed in the same career path, with over 40% reporting having changed career paths three or more times.

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“We see clients working longer because they enjoy what they do. They are healthier, they have more flexibility, and technology has enabled people to work longer than they did historically.”

Cindy Ackles - WealthCo Asset Management

How we spend has changed

Not only has the way we work changed, but there have also been drastic changes in how we spend our hard-earned dollars. Health spending, for starters, has increased dramatically, currently at nearly 12% of GDP as compared to 7% in the mid-seventies. There has also been a steady increase in purchasing services over goods (spending on services accounted for 52% of spending in 1970, and today is closer to 70%), with education and health care accounting for the top two spots among the fastest-growing household expenditures.

Registered Retirement Savings Plans

Registered Retirement Savings Plans (RRSPs) had only been introduced 14 years prior to 1971, in 1957. They were specifically introduced in order to provide a savings alternative for those individuals who didn’t have a pension to rely on. Originally, Canadians could contribute $2,500 or 10% of their income. There wasn’t a tremendous amount of uptake when RRSPs were first introduced; only 2% of Canadians had contributed in 1968. By comparison, nowadays almost 70% of Canadians hold an RRSP account, with the average account sitting at $111,922.

Age of retirement

Life expectancy rates have increased significantly from 1971 (see table below), and this trend is expected to continue. In the 70s, the average age of retirement was 64.9 (with public sector employees retiring earlier than private-sector employees and self-employed folks working until they were 66.4). Interestingly, the average age of retirement has stayed pretty consistent (it was 64.5 in 2020, and 68 for the self-employed Canadians), giving retirees, on average an additional nine years of retirement than their 1970s counterparts.

Canadian Pension Plan

In 1971, the Canadian Pension Plan (CPP) had only been in effect for six years. It was established in response to increasing poverty levels among the retired population.

“CPP today looks a lot different today than it did in 1971 when the plan relied only on contributions to pay benefits,” Ackles points out. “To ensure sustainability and restore public confidence, the plan was overhauled in 1997. With the introduction of a reserve fund and the CPP Investment Board to manage it, the plan is now one of the largest global pension funds. Between this overhaul, along with the implementation of the current enhanced benefits, today’s members will receive higher benefits and have the confidence in the sustainability of the plan throughout their retirement years.”

Whether you hope to retire in three years or in thirty years, it is never too early or too late to begin planning for that day. Retirement looks different for everyone. For some, it’s full retirement. For others, it’s semi-retirement or a gradual transition. If financial freedom is the destination, then financial planning is the roadmap. No journey should start without understanding how to get there, and more importantly, checking the map along the way to make sure you are on track.

Book your retirement review today, and get started on your roadmap.