Time to Leave God’s Waiting Room?

Wednesday, March 8, 2023

Florida is often described, uncharitably, as God’s waiting room – a warm no man’s land where seniors go to wile away their remaining years. The view is that these folk, happily retired, do very little other than sit in a rocking chair and swing the occasional golf club. But conventional retirement, including this snowbird stereotype, is increasingly out of step with modern living.

As we all know, life expectancy is increasing. In 1970, Canadians had an average life expectancy of 70.7 but 40 years on that had risen to 81.7. Retirement savings, therefore, need to last longer and be able to cope with the subsequent health and wellbeing costs as we age. The 2008/2009 recession and global financial crisis, combined with the decline in pension coverage and a shift from defined benefit to defined contribution pension plans in the 1990s and 2000s, compounded this trend. The financial risk has now largely been transferred from employers to employees.

Gone are the days when an employee would stay with one company for 30 or 40 years. According to career experts Zippia, the average person now changes jobs 12 times in their lifetime. In short, it’s harder to build up a suitable pension pot than it was. While we aren’t all going to enjoy Marvel-hero style longevity, the financial plan that had your money lasting until you were 90 may have to be revised.

What does this new reality mean? Firstly, and obviously, people have to work longer. According to Statistics Canada, more than 53 percent of men aged 65 or older and 38.8 percent of women of the same age were still working in some way in 2015. This is the highest proportion recorded since the 1981 Census. The number of seniors working also doubled between 1995 and 2015, with most of the increase coming from part year or part time work.

Will you have an encore career?

An element of this is lack of choice; if we’re living longer and want to maintain a certain standard of living, we must work more and save more. This instinctively sounds bad, right? Slaving away longer for less security in our twilight years … but is it? Your Grandpa likely stayed with one employer and saved enough to retire at 65 to live another 10 or 15, if he was lucky. Now, we arguably get to have more varied careers and live longer, and working past retirement age is far from a negative. In fact, for a lot of people, it’s the key to a vibrant, stimulating later life as a wise, albeit wizened, elder statesperson.

An ‘encore career’ can go by other names – semi-retirement or even “victory lap” – but for those who have a retirement plan and want to top up their bank account, it might be ideal. There are also important, non-financial reasons to keep on working.

Some seniors are affected by what they feel is a lack of purpose when they leave the workforce, while they might also feel lonely without daily social engagement. These two combined, it’s been proven, are detrimental to your physical and mental health. For seniors who crave intellectual stimulation, instead of retiring to the pool full time, an encore career can give you enough financial independence to create your “era of choice”. The mortgage is ideally paid off and you no longer rely on bringing home a set amount of dollars every month. Instead, you are fully in the financial driver’s seat. This, in turn, gives you choice.

An encore career, therefore, might mean you pursue a passion you haven’t previously been able to, maybe because life as a CEO was too time-consuming and lucrative. Maybe you monetize a hobby, or maybe you opt for a social job like barista to get your fix of human interaction. The point is, you can do whatever makes you happy and generate some income at the same time. This not only fulfils you on a personal level but also means you don’t have to scrimp and save during retirement. Knowing this is how retirement might look in the 40s and 50s could also alleviate the perceived pressure of having to save every penny possible to ensure you don’t outlive your money.

The benefits of working with an advisor

An encore career, like any retirement decision, requires planning. What are your goals? How much do you want to earn? What is the motivation? Is it to get rid of credit card debt, pay for an annual vacation, cover monthly expenses, or make up for lost pension income after the death of a spouse?

Crucially, assuming this new job is being weaved into an existing retirement plan, the considerations are also lifestyle based. Is this new work fulfilling? Will it enhance your life? Do you really need to work full time and miss crucial family time? An advisor can help you find that sweet spot to ensure you feel confident that the time spent working is worth the money gained. For example, if you have a healthy pension or assets, you may see a large part of your government retirement income clawed back if you embark on an encore career.

Tax implications are key. Income tax is not withheld from CPP and OAS unless an individual requests it, while if minimum Registered Retirement Income Fund (RRIF) withdrawals are made, there is no mandatory tax withholding. Part-time jobs may have little tax withholding, but a full-time job may not withhold enough to cover all income being received. An advisor can examine your situation to mitigate the risk of an unexpected and potentially large tax bill.

So, if you need, or want, an encore career, fear not, the conventional retirement model is on its way out. A longer life does not have to mean more financial stress. Instead, with the right professional advice, it can energize your later years and give your career a rewarding final act.

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