Has Retirement Outlived Its Usefulness?

Malcolm HamiltonToronto

Has Retirement Outlived Its Usefulness?

June 14, 2007 – CPBI, Winnipeg

2Mercer Human Resource Consulting CPBI Winnipeg Jun14-2007

The papers are filled with stories about the demise of retirement as we know it…

BMO Podcasts

Fidelity Investments

Marty SimsEVP, HSBC

“Canada’s

New

Retirement

Reality”

“The New

Retirement

Math”

“The whole

notion of

early

retirement

is being

rejected”


“Retirement: it’s a word without meaning…the current group of retirees and soon-to-be-retirees are redefining the way people stop working—if they end their careers at all. Statistics Canada studies show more people are choosing to work longer.”

Toronto StarNovember, 2006

“Nearly half of those in their 40s and 50s expect to continue working for as long as possible”

The Globe & MailMay 23, 2007


Those zany boomers – determined to work forever; eager to stay in debt.

“Canadians told us it was about time to retire the word retirement.

Retirement for this generation is different in that it is a more ‘fluid’ transition. And they aren’t going to wait until they pay off the mortgage. About two-thirds of Canadians expect they will still be in debt when they quit working.”

Tina Di Vito,Director of Retirement SolutionsBMO Financial Group


Older workers a drain? Not a chance, study finds…

“The HSBC survey found that older Canadians perform more than $3.1 billion worth of volunteer work each year”


“According to Statistics Canada’s 1998 General Social Survey on time use, 3.2 million retirees spent about 5 billion hours doing unpaid productive work. The economic value to our communities is thought to be $60.2 billion each year.”

Seniors at WorkNational Advisory Councilon Aging, 2005


Worried about population aging?

“In fact, through taxation, volunteer work and the provision of care to family members, HSBC has found that those in their 60s and 70s are the foundations upon which their nations build.”



The secret life of Canada’s senior citizens…


Seniors have half the income of working Canadians, yet they appear to be doing quite well…


According to recent studies…

Poverty rates for Canadian seniors are among the lowest in the world

Poverty rates for Canadian seniors are substantially lower than poverty rates for other age groups


Canadian seniors are frugal, not poor.

They…

save prodigiously

give more to others than theyreceive from them

spend less and less as they age, evenas their gift giving and savings increase

spend relatively little time in institutions

leave surprisingly large estates


Surveys suggest that…

seniors are relatively satisfied with their financial circumstances

they worry more about health and loneliness than money

they believe that their quality of life is better than the quality of life enjoyed by their children or grandchildren


Surveys also suggest that…

the transition into retirement is easier than people expect

retired Canadians feel that they have more control over their lives than working adults and value the additional leisure time

retired Canadians miss work, and the employment income derived therefrom, less than they thought they would


To understand why seniors are satisfied with small incomes while boomers are dissatisfied with large incomes, one must look not at the incomes, but at the demands placed upon them…


When you look at both incomes and expenditures, seniors enjoy a standard of living comparable to working families, without having to work…

Median WorkingAge Couple

Median Senior Couple

Income $69,700 $35,600

Taxes (18,600) (5,000)

Mortgage (6,100) (200)

Retirement Savings (6,100) (0)

Dues and Daycare (1,000) (0)

Provision for Children (9,800) (0)

Adult Consumption $28,100 $30,400(1)

Source: 1997 Survey of Consumer Spending;probably 30% higher today

(1) Seniors saved or gave away about $6,000 of this


and seniors exhibit a higher level of satisfaction with their lives than working people…

20%

22%

24%

26%

28%

30%

32%

34%

36%

38%

40%

20 30 40 50 60 70 80

Age

Aging Well: Time Use Patterns of Older CanadiansJuly, 2006

Percentage of Canadians ReportingHigh Levels of Satisfaction with Their Lives


Finally, despite the HSBC’s protestations, seniors are not large contributors to paid or unpaid work…

Seniors account for

– 17% of the adult population

– 3% of the workforce

– 2% of employment income

the average senior spends about 0.5 hours per day on volunteer work, virtually the same as the average non senior


Average Retirement Age

Late 1970s 2000 to 2004

Public Sector 65 58.6

Private Sector Employees 65 61.8 Self Employed 65 65.1

Overall 65 61.1Statistics Canada

Despite living longer, Canadians are retiring earlier…


And the smarter they are, the earlier they retire…

Highest Level of Educational Attainment

Average Retirement Age: 2000-2004

Elementary School 64.8

Some High School 63.0

High School Graduate 60.3

Some Post Secondary 60.6

University Graduate 59.4

Overall 61.1Statistics Canada


Once they stop working, what do elderly Canadians do with their spare time?


Canadian men over the age of 75 did 4.4 hours per day less paid work than Canadian men between the ages of 55 and 64. The extra time was spent as follows…

Hours Per Day

Watching TV 1.2Other and “Unreliable” 1.1Sleep 1.0Leisure 0.5Housework & Shopping 0.4Eating 0.3Volunteer Work (0.1)

4.4Aging Well: Time Use Patterns Of Older Canadians,

July 2006


Good health is the characteristic that has the greatest influence on satisfaction. Among healthy older Canadians, those who were highly satisfied spent…

less time working (paid and unpaid)

more time watching TV, sleeping and in active leisure

The differences, however, were not large


But what of the future?

Will retirement be redefined or will people simply retire earlier or later depending on

what they can afford?


To change retirement patterns, or the meaning of retirement, several things must happen…

people must be capable of working longer,

people must want to work longer, and

employers must want to attract and/or retain older workers.

Are these thingsabout to happen?


Aging, Longevity and Retirement

Can People Work Longer?


“100 Year Olds Bust Ad Myths”Calgary Herald, September 10, 2006


Jeanne Calment – the Oldest Known Human

1875 – 1997


What is aging?

20 years of maturation

60 years of senescence(1)

(1) the process of gradual physical and mental deterioration as people age


What we read...

“Thanks to modern medicine and better nutrition, old

people are not getting old as quickly as they used to. The idea of settling into a rocking

chair the day you turn 65 doesn’t appeal to today’s active senior citizens…”


What we learn in the real world…

“There are no lifestyle changes, surgical procedures, vitamins, antioxidants, hormones or techniques of genetic engineering available today that have been demonstrated to influence the process of aging.”

Position Statement On Human Aging


Why are people living longer?

Because better nutrition, public health, a reduction in warfare and advances in the treatment of disease have allowed people to live longer.

NOT because the aging process has been retarded or reversed.


Put another way,

we have prolonged life by more than we have prolonged the onset of old age.


The question…

should retirement be tied to longevity or to senescence?


Of course, boomers want to believe that they, unlike earlier generations, are not growing old…

and there is no shortage of people who are prepared to tell them what they want to hear.


What we read…

“I’ve seen a huge change over the last few years. When I started at this job 25 years ago most of the patients were in their 60s and 70s. Now there are days when I don’t see anyone under 90.”

Dr. Barbara Paris

September 30, 2006

The Boomer Effect:

Turning a New Leaf



“The need for better community health care services is increasingly urgent because much of the pressure on emergency rooms is due to the rapidly aging population, the report noted. People age 75 or older have the highest—and fastest growing—rate of emergency room visits. Their problems are complex and in many cases require hospitalization in institutions that are already full to bursting.”

National PostOctober 3, 2006

Aging population putting pressure on ER, study finds


What we read…

“In terms of how people feel and what they are capable of, we believe that 70 can be said to be the new 50.”

The Future of RetirementHSBC



“You always say you don’t want to be like your parents but this particular generation won’t be much different from the older people 40 years ago.”

David FootHamilton Spectator

March 1, 2006


Changing attitudes – do people really want to work past 65, or do others want them to believe that they do?


What we read…

“Let workers stay on the job past age 65 – Bank of Canada governor.”

Canadian PressMarch, 2007



“I turn 65 next year. I’m going to take a bit of a rest after 40 years of working without a break.”

Dave DodgeFinancial PostApril, 2007


What we read…

“In the old days, Don Dewees, 65, would have been cleaning out his

office and getting ready for retirement. But in today’s world,

where 60-somethings are the new 40-somethings, the University of Toronto professor has no plans

to slow down”.

December, 2006

End of forced

retirement changes

face of workplace



Estimated number of Ontarians expected to take advantage of the abolition of mandatory retirement

4,000 per annum

If each works an extra 5 years, the total increase in Ontario’s workforce

0.3%

Extent to which the abolition of mandatory retirement is expected to mitigate the impact of population aging during the next 25 years

1%


What we read…

“The boomers are saying, ‘I’m not going to Florida

to sit at the pool and play cards all day’.”

September 30, 2006

The Boomer Effect:

Turning a New Leaf



Increase in Florida property prices: 2000 – 2005

Average price of a single family home in Victoria, B.C.: $520,000 in October 2006


What we read...

May 29, 2006

Early retirement

becoming a trend

of the past.

“The trend toward early retirement, which

peaked in the late 1990s, has ended…”



Average Ageat Retirement

Late 1970s 65.0

1995 to 1999 61.0

2000 to 2004 61.1

Statistics Canada


What we read...

Boomers are planning

new careers after they

leave their jobs.

September 24, 2005

“Baby boomers are increasingly redefining

retirement, by looking at it as a career change rather than an extended vacation plan,

research suggests.”



% of Canadians Who Wantto Spend Time Doing This

Activity in Retirement

Travel 58%Crafts & Hobbies 48%Family & Friends 25%Volunteer Work 18%Sports 14%Continue to Work 1%Consulting/Small Business 1%

BMO Retirement Trends Study


And, of course, there are many examples of people who are working for as long as they can…

Kirk Kerkorian Warren Buffett Billionaire Billionaire90 76

Stephen Jarislowsky Benedict XVI Billionaire Pope80 80

Clint Eastwood Elizabeth IIActor/Director Queen77 81


Are employers interested in attracting and/or retaining older workers?


According to a recent survey by Manpower Inc.(1)

“Canadian employers are failing to prepare for the looming loss of older workers that will occur as the Baby Boomers retire during the next 10 years.”

17% have a plan to recruit older workers (50+)

24% have a strategy for retaining older workers

(1) The New Agenda for an OlderWorkforce: April, 2007


According to a recent (American) study by Boston College’s Center for Retirement Research…

Roughly one half of employersmight consider steps to retain asmany as one half of those whowant to keep working past normalretirement age for an extra 3 years.

“This is not good news. It suggests the possibility of a messy and uncomfortable mismatch with large numbers of older workers wanting to stay on(1) while employers prefer that they do not.”

(1) Employers believed that 25% of their employees would not be prepared for retirement at the normal age


What about the “war for talent?”

“If employers don’t act soon they will fail to win the war for talent as older adults will be relied upon as one of the most important sources of talent for the future workforce.”

National PostApril, 2007

“An aging workforce nearing retirement means employers are having to compete for talent as never before.”

Globe & MailMarch, 2007


The truth about the “war for talent”…

there has always been, andwill always be, a war for talent

labour shortages today are largelydictated by industry not demography

– no shortage of paper or auto workers

– shortages of health workers and oil workers

while the number of children born in Canada each year is about 30% lower than at the 1960 peak, the number of university graduates has been increasing

if demography was calling the tune, we would be reading about a glut of highly-qualified managers and business leaders


It is difficult to reconcile the prevailing stereotypes of Canadian boomers…

Stereotype #1

Bumbling, irresponsible wastrels incapable of managing any aspect of their personal finances

Stereotype #2

Skilled, experienced workers essential to the success of Canadian corporations


The boomers’ perception of older workers has been changing

When the boomers were young,they viewed older workers as poorly educated, unmotivated, overpaid impediments to the success of the business.

Now that they are older, they perceive older workers (themselves) to be well educated, energetic, highly motivated, uniquely talented dynamos whose continuing employment is essential to the success of the business.


It is difficult for employers to project their manpower needs ten years into the future…

Will the economy grow quickly or slowly?

Will the business falter or flourish?

Will there be a shortage of skilled workers,or a glut?

Will skilled workers immigrate or emigrate?

Will jobs move abroad, or come home?

Will employees retire early or late?

Will elderly employees maintain their skills, energy and enthusiasm?


For all of these reasons…

It is premature to conclude that most corporations will want to attract and retain older workers.

It is hazardous to commit to a course of action that locks corporations into retirement incentives or retention incentives for long periods of time.


Finally, what about public policy?

What if employees want to retire and their employers want them to retire, but the government can’t afford to have them retire?


Governments are understandably concerned about the trend toward longer lives, lower fertility and earlier retirement. Who will do the work? Who will pay the taxes?…

“Public early retirement schemes shouldbe gradually phased out…”

Recent OECD Report

Countries must mobilize “all available labour reserves in order to sustain economic

growth.”

Recent OECD Report

The government of Canada is conducting a review “to ensure that pensions don’t serve as a disincentive to older workers remaining in the

workforce.”

Diane Finley – Minister ofHuman Resource and Social Development, 2006


Bureaucrats advocate incentives to head off labour crunch.

Globe and Mail, December, 2006

“Canada needs a new strategy to help older workers stay on the job until they are ready to retire, one that includes restructuring the country’s inflexible pension plans, government documents say.”

“Optimizing older worker participation is thebest means to offset labour market declines.”

“The bureaucrats in HRSDC who wrote the policy paper say that the average retirement age within the public sector is 57 (1) and it’s time to get our own house in order.”

(1) versus 62 in the private sector


Labour shortage spurs Ottawa to ask boomers to work past 65

Toronto Star – January, 2007

“The federal government is pleading with aging boomers to work past retirement to offset a serious labour shortage in Canada. ‘We need them’, Human Resources Minister Monte Solbergtold the Toronto Star yesterday.”

“It’s an imperative for the country. We just have to do it. The countries that do it will succeed. And if we don’t do it we won’t. And the truth is, the government can’t do it all.”

Monte Solberg


Government concerns are now being echoed by others…

“Governments, private-sector corporations and communities in general really need to be mindful of this demographic trend, to make sure policies are being put in place that allow these older Canadians to be as active as they want to be, or are able to be, in terms of contributing to society as a whole.”

Marty SimsEVP, HSBC


The slippery slope…

Allow people to work.

Persuade people to work.

Encourage people to work.

Compel people to work.


The federal government appears disinclined to lead by example…

2005 changes to civil service pensions

– higher contributions

– higher pensions

– encourages earlier retirement

2006 changes to pensions of correctional service officers

– 25 and out (parity with the RCMP)

– lower member contributions


The federal government has a formidable challenge…

Encourage other Canadians to retire after 65 while federal civil servants retire in their 50s


To this end, Canadians are being encouraged to believe that…

unlike earlier generations, they are not growing old, and

continuing employment gives meaning to their otherwise meaningless lives


Conclusions

As a matter of public policy, Canadians should not be expected to retire later simply because they are living longer and having fewer children.

Retirement ages should increaseif the age up until which olderCanadians can successfullycompete for work increases.


Predictions…

Low interest rates and increasing life expectancies will make early retirement more expensive and this will naturally lead to later retirement.

Future generations will retire later in part because they had their children later.


Predictions…

Most Canadians will continue to want aviable option to retire in their early 60s.

Of those who are able to retire in theirearly 60s, most will choose to do so.

Retired Canadians will live active and productive lives; many may choose to work part time for social or economic reasons; however, they will prove a poor substitute for young workers.

Phased retirement makes sense, but individuals are as likely to use it to retire early as to retire late.


Predictions…

Most employers will continue to wantolder employees to retire at or before age 65.

Given their inability to foresee workplace needs 10 years in advance, employers will move to “retirement age neutral” pension plans and use targeted cash incentives to selectively encourage older employees to stay or go as the times demand.

Poorly targeted phased retirement programs, as envisioned in the federal budget, will be rejected in the private sector in favour of targeted rehiring.


Suggestions…

As regards the merits of persuading Canadians to stay in the workforce, governments should shut up or lead by example.

Taxpayers should not be expected to pay 20% or 30% so public servants can retire in their 50s while the federal government looks for ways to force/encourage those employed in the private sector to retire after 65.

Documents

Has Retirement Outlived Its Usefulness?