How the pandemic will shake up retirement, and what you can do now to get ready

With the arrival of a second wave of COVID-19, now seems a time to focus on more immediate concerns than how the pandemic will affect people retiring in the years ahead.

But retirements that begin 10, 20 or even 30 years from now will be shaped by decisions made today. Some things to consider and act on include how much you can afford to save for retirement, when you’ll retire and the type of job you’ll seek out in your prime working years. Right now, strong pensions are looking pretty great because of the security they provide.

Let’s start with some encouraging news. In the latest Global Retirement Index from Natixis Investment Managers, Canada ranked eighth out of 44 countries for retirement security. We scored particularly well in health and quality of life.

Natixis, part of a global bank based in France, outlined five risks to retirement going forward: recession, low interest rates, government debt, climate change and economic inequality. Blame the pandemic for creating or worsening all these factors but climate change.

Recession risk refers to the impact on personal and government pensions if individuals aren’t working and making contributions. Low interest rates make it harder to build your retirement savings in a diversified portfolio that might be 30 to 50 per cent invested in bonds.

Public debt presents the risk that governments will have to take measures such as cutting spending or benefits or possibly raising the age for retirement benefits like Old Age Security. Inequality refers to an imbalance in retirement saving and income based on race or gender.

We’re starting to understand that the pandemic’s financial impact on the country has been intensely felt by some and not at all by many. In fact, some people are getting wealthier via strong investment returns following the March market crash, by rising house prices and through increased savings fuelled by reduced spending.

If you lost your job or your income was cut in the pandemic, you need to prioritize short-term needs over long-term retirement planning. Working longer or ramping up retirement contributions at a future date are potential fixes for a saving shortfall.

If you’re one of today’s financially fortunate, you have some strategizing to do. Start with a look at whether you need to increase your personal retirement savings as a hedge against the risk of unfavourable changes to government or workplace retirement programs.

“It’s easier said than done, but you want to try to maximize how much you save,” Esty Dwek, head of global market strategy for Natixis Investment Managers Solutions, told an online briefing on the retirement ranking. “I recently saw an article on saving and budgeting advice and one of the conclusions was that you’re only saving enough if it hurts.”

One of the motivations to save more might be to retire earlier. No great leap of logic is required to see people retiring later as a result of the pandemic, but early retirement is definitely under consideration by some people.

“In some of our research we’re finding a sense that people want a simpler life and that work isn’t as important,” David Coletto, chief executive officer of Abacus Data, said in a recent briefing on a poll his company did for the Healthcare of Ontario Pension Plan (HOOPP). “Therefore, they’re looking for opportunities to retire earlier and retire in a way that gives them certainty in the future.”

The HOOPP poll that found people with a workplace pension of any type were twice as likely to have set aside money for retirement than people without. (It’s a counterintuitive finding until you realize those with pensions at work tend to have better quality jobs, allowing them to save more.) Pensions equate with financial security, a point that highlights the value of jobs with a workplace retirement savings program where employers make contributions as well as workers.

Almost 70 per cent of the 3,500 participants in the poll said they expected that COVID-19 would have at least a little impact on their retirement security. “We already had a majority of Canadians saying they were concerned before, but there’s been a noticeable and real increase as a result of the pandemic,” Mr. Coletto said.

Now’s the time to start acting on this concern. Don’t wait until pullbacks in retirement programs start emerging in government budgets and announcements from your employer.