Friday, July 30, 2010

Retirement taking a backseat to present: BMO

Why are Canadians dragging their feet when it comes to retirement planning?

BMO says the answer can be found inside their minds. Using behavioural finance research, the bank believes it has uncovered clues as to why Canadians are procrastinating the way they are.
A report from BMO Retirement entitled Retirement Planning: Can I Get Back To You On That? and based on a survey conducted by The Strategic Counsel reveals that Canadians are more mindful of their present financial circumstances rather than their future.

The concepts of "immediate gratification" and "paralysis of choice" have severely affected retirement planning in Canada.

Delving into the psychology behind the competing priorities, the report states that although 82% of respondents understood that saving early for retirement is important, more than 81% are more concerned with their present needs than their retirement.

Canadians are also overwhelmed with too much information and too many options involving retirement planning. This has resulted in frustration and paralysis when action is required.
Thirty-six percent of non-retirees said they are overwhelmed by too much information and this has been an obstacle to them moving forward with retirement saving plans.

"While it's often hard to act against our natural instincts, it's critically important that Canadians take an active role in planning for their future and start as early as possible," says Tina Di Vito, Head, BMO Retirement Institute. "Understanding the psychological barriers to effective retirement saving is the first step to overcoming them."

The report also points to other contributing factors that are delaying many retirement plans. Those who have children under the age of 18 are unlikely to see saving for retirement as an immediate priority, as post-secondary education may take precedence. It is also difficult for those with a heavy debt burden to focus on retirement. Lower income respondents are overwhelmed by the volume of information available.

For those who are interested in saving for their retirement, BMO suggests the following steps:
Save early

  • Create a budget
  • Set financial goals and monitor your progress
  • Sign up for your company's pension plan
  • Make full use of tax-favoured investment vehicles
  • Set up an automatic savings program
  • Seek out financial help
The report was based on a poll of 2,034 Canadians, 35 years of age or older and was conducted using The Strategic Counsel's web panel between May 26 and June 2, 2010.
(07/29/10)

Filed by John Powell, john.powell@advisor.rogers.com
Originally published on Advisor.ca

15 comments:

Torpesco said...

I'm saving for retirement, but am constantly wondering what I should actually be investing/saving in.

The mutual funds I'm in have been stagnant. One with a fortunately small investment even lost a significant chunk of its value at a time the markets were booming. The last thing I put money into was the ING streetwise fund -- it has done better, but that's just short term over the past six months.

My parents have mutual funds that have gained nothing since the early 90s -- not even matching inflation! Fortunately their main source of retirement income is a pension plan that's doing well.

My inlaws have mutual funds from the late 90s in the same situation.
Father in law is self-employed... so no pension plan from work. Recently he's invested mostly in residential real estate (not Vancouver!) that he rents out with no losses on mortgage/maintenance costs yet.

Tomas said...

Edmonton's real estate is dead.
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patriotz said...

My parents have mutual funds that have gained nothing since the early 90s -- not even matching inflation!

The TSX total return for the last 20 years is 8.43% pa, for the last 15 years it is 8.47% pa.

I think the best strategy for just about anyone is to set an asset allocation, invest in low-cost index ETF's and fixed income, and rebalance regularly.

mohican said...

The most likely reasons why investors fail are:

1) following trends
2) not saving enough
3) paying too much

Patriotz' advice is good - set your asset mix and stick to it while not paying lots in management or trading fees.

A really good general rule is to have the equivalent of your age as a percentage in fixed income investments - eg - 40 years old = 40% fixed income. The remaining equity based component should be well diversified around the globe with perhaps up to 50% of the equity portion of the investments in Canada.

Saving 10% + of your gross income toward retirement is a really good general rule too.

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明RoseH_Huls中 said...

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arronbond said...

If you are going to have retirement then you need to have the right retirement savings plan in place today so that you will have the financial means to enjoy your retirement in the future.

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Jake said...

Indeed, the best strategy for just about anyone is to set an asset allocation, invest in low-cost index ETF's and fixed income, and rebalance regularly.

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