Canadian investors and advisors must confront the realities of the new retirement environment: Peter Drake, Fidelity Investments Canada

Jun 06, 2011, 13:00 ET from Fidelity Investments Canada Limited

Longer lives, volatile markets - Are investors and advisors doing enough to mitigate the risks to their retirement income? 

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OTTAWA, June 6, 2011 /PRNewswire/ - In a speech today at the Canadian Institute of Financial Planners annual conference in Ottawa, Peter Drake, Vice President, Retirement and Economic Research, Fidelity Investments Canada ULC called attention to the new retirement realities facing Canada's baby-boomer generation and highlighted the importance of taking account of the five key risks to retirement income as part of the retirement planning process.

Drake emphasized that the conventional wisdom about retirement planning needs to be adapted to suit the new environment faced by today's Canadians who are retired or about to retire. He pointed out that financial advisors can play a crucial role in helping Canadians understand that their retirement planning choices must not only reflect the longer lives we are now living and the volatility of capital markets, but also changes to Canada's retirement income system. 

In 2005, Fidelity published its influential retirement research report, Lifetime Income Planning which introduced the five key risks to retirement income and confirmed the importance for Canadians to develop written retirement income plans. Since it was first published, Fidelity has fulfilled over 35,000 requests for the report from Canadian financial advisors, showing the need for in-depth research on issues facing Canadians as they approach retirement. Today, Fidelity issued its latest retirement research report, After the global financial crisis - the 5 key risks to retirement income. The report re-confirms that the principles behind the five key risks are just as robust and valid in the wake of the crisis as they were before the crisis. The full report will be available on

"Financial advisors and investors will need to work closer than ever before to identify the level of risk that is acceptable to the individual investor, while managing the sometimes conflicting goals of adequate pre-retirement income replacement, capital preservation and long-term growth," said Drake. "A retirement income plan that addresses the five key risks to retirement income can considerably improve the financial well-being of Canadians in retirement."

The five key risks to retirement income are:

  1. Longevity risk- Canadians are living longer and healthier lives and many have ambitions to retire earlier than their parents. There is a 50% chance that at least one member of a couple both 65 will live to age 90 and a one in four chance that at least one member will live to 94. As active, healthy lifestyles and medical advances continue to extend life expectancy, Canadians will have to consider how early they can afford to retire and plan for the real possibility that they'll need 25 to 30 years of post-retirement income. Do Canadians' retirement plans reflect this reality?
  2. Inflation risk - Inflation is a big concern for many retirees and even if the government fiscal and monetary stimulus used to fight the global financial crisis does not result in higher inflation, inflation is still a threat to retirement plans. While high inflation, such as that experienced in the 1970's is unlikely, even a modest 2% inflation over the span of a 25-year retirement - approximately the same rate as the past 20 years - can erode a retiree's purchasing power by 40%. Retirees need investment portfolios capable of keeping up with inflation.
  3. Asset allocation risk - The 2008-2009 crisis heightened anxiety about the stock market. But historically equities have provided long-term growth that is critical in providing needed income in retirement. A diversified portfolio that includes stocks, bonds and cash helps provide growth as well as protection against market volatility.
  4. Withdrawal rate risk  - The increased volatility in the stock market over the last few years has highlighted the need for conservative withdrawal rates that help ensure one's investments last as long as a person's retirement. The risk of outliving one's investments rises with annual inflation-adjusted withdrawal rates over 4-5% of the original value of the portfolio. 
  5. Health care risk - The 2010 Fidelity Retirement Survey highlighted the concerns retirees have about what health care may cost them beyond what is covered by government and private insurance. In fact, 39% of retirees surveyed believe health care costs beyond the government programs could deplete their savings and lower their standard of living. Canadians need to understand what is and isn't covered by government health care plans, what their potential needs may be and plan accordingly for out-of-pocket age-related expenses.

"There is no doubt the global financial crisis and the economic recession of 2008/2009 caused both financial and emotional distress for Canadian investors, and older Canadians in particular," added Drake. "But it hasn't changed the risks to retirement income, which all Canadians need to consider. Rather, it highlighted the need for greater individual risk assessment and the need for a written retirement income plan that incorporates strategies to mitigate the five key risks to retirement income."

Drake believes that financial advisors can play a crucial role in helping Canadians achieve their retirement goals. Specifically, advisors can provide much needed perspectives on macro economic trends like longevity, inflation and market volatility as well as providing insights into more specific issues like asset allocation and health care expenses.

"Over the many years Fidelity Canada has been conducting comprehensive research on the behaviours and attitudes of Canadians regarding retirement, there has been one constant - Canadians who work with a financial advisor are more financially and mentally prepared for the transition into retirement. Time and time again, research shows that working with a financial advisor is one of the best decisions an investor can make," concluded Drake. 

Key findings from the 2010-2011 Fidelity Canadian Retirement Survey

  • 72% of non-retirees and 71% of retirees do not have a written financial plan.
  • Over 60% of Canadians who work with a financial advisor stated that they were confident that they were on the right track with the investment plans they had prior to the recent financial crisis versus 39% of Canadians that did not consult an advisor.
  • 52% of Canadians surveyed agreed with the statement, "I am confident that I am on the right track and will continue with the investment plan that I established before the crisis."
  • 46% of retirees who work with an advisor describe their transition into retirement as easier than expected. This compares to 37% of those who do not work with an advisor.
  • 41% of those surveyed agreed with the statement, "I am not going to invest in anything but safe investments for a long time."
  • 32% of retirees with an advisor report that their savings are still growing in retirement versus only 16% of retirees that do not work with an advisor.
  • 23% of those surveyed agreed with the statement, "The way I invest has changed for good."

About the Fidelity Canadian Retirement Survey

The 2010 - 2011 Fidelity Canadian Retirement Survey was conducted by The Strategic Counsel. The survey was conducted online from September 17 to October 11, 2010 among a representative sample of 1380 adult Canadians 45 years and older.  In order to participate in the study, respondents were required to be the person in the household with the main responsibility or, shared the responsibility for savings and investing decisions.

The composition of respondents reflects that of the actual Canadian population of those 45 years and older based on 2006 Statistics Canada Census data. Statistical margins of error are not applicable to online polls, however, an unweighted probability sample of this size, would have an estimated margin of error of ±2.6 percentage points. The margin of error would be larger within regions and for other sub-groupings of the survey population.

About Fidelity Investments
Fidelity Investments Canada ULC is the country's sixth largest mutual fund company and part of the Fidelity Investments organization of Boston, one of the world's largest providers of financial services. In Canada, Fidelity manages a total of $68 billion in mutual fund and institutional assets. This includes $15 billion in assets for institutional clients including public and corporate defined benefit pension plans, endowments, foundations and other corporate assets on behalf of clients across Canada.

Fidelity Canada provides Canadian investors a full range of domestic, international and income oriented mutual funds. Fidelity funds are available through a number of advice-based distribution channels including financial planners, investment dealers, banks, and insurance companies. Fidelity is a proud supporter of the Boys and Girls Clubs of Canada and we are dedicated to helping young Canadians realize their full potential as productive, responsible and caring citizens.

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SOURCE Fidelity Investments Canada Limited