CIBC Polls show OAS changes won't disrupt retirement plans for many Canadians

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Apr 05, 2012, 06:00 ET

Many Canadians aged 45-54 were already planning to work past 65 - but some may need to revisit their savings and debt management plans

TORONTO, April 5, 2012 /PRNewswire/ - Many Canadians aged 45 to 54, the first age group to be affected by the proposal to increase the age Canadians can collect Old Age Security (OAS) payments to 67, were already planning on working past age 65 according to CIBC polls conducted by Harris/Decima in September 2011. These findings suggest the proposed OAS changes won't cause these Canadians to rewrite their retirement strategies, however with some expecting to carry debt into retirement, more aggressive savings and debt management plans may be in order.

Consumer polling conducted in late 2011 provides a number of insights about Canadians in the 45-54 age group, the first major cohort to experience the changes to the OAS rules in the future. Among the highlights:

While the average target retirement age for these Canadians is 63, more than two-thirds plan to stay engaged in the workforce after they retire, including taking on part time work (43 per cent), or doing some occasional consulting (22 per cent). This suggests these Canadians were already planning to supplement their income to some extent and stay active in the workforce.
Looking ahead to their sources of income in retirement, 30 per cent said they planned to rely primarily on their own savings, while 25 per cent said they believed government payments would be a key source of income. Another 25 per cent named private pensions as their primary source of income.
One-quarter (26 per cent) of this age group said they expected to carry some debt into retirement. One in six (17 per cent) Canadians between 45 and 54 said they would still have a mortgage payment when they retire.

"Most Canadians aged 45 to 54 are not likely to require major alterations to their retirement plan based on the recently announced changes to OAS," said Jamie Golombek, Managing Director, Tax and Estate Planning, CIBC. "However for those who expect to carry debt into retirement, it is another reason to revisit their savings and debt management plans with an advisor in these critical years before retirement. Good debt management is particularly important, as repaying debt in retirement creates a drag on your discretionary income."

With this in mind, changes to OAS payments need to be factored into retirement planning for those who were planning to retire at age 65. With the potential for a reduced monthly income, Canadians will need to carefully consider how their finances will look in the early years of their retirement and whether debt repayment would now have a greater impact on monthly retirement income.

"Fortunately, there is ample time for Canadians to make adjustments today as part of their retirement planning and to make progress on debt repayment," added Mr. Golombek. "With a number of years on their side, small adjustments now can lead to meaningful improvements in both savings and debt."

"Taking an integrated view of your overall financial picture including savings and debt is the single most important step you can take today to help guide you to the retirement you want for you and your family tomorrow," added Mr. Golombek.

Mr. Golombek offered the following advice to Canadians who will see changes to their OAS payments as a result of recent budget measures:

Retirement Planning involves building savings and debt repayment - eliminating debt before retirement remains essential to making your retirement income go further. Consider setting your regular mortgage payment higher than the minimum required today, which will reduce principal faster at today's low interest rates. Also, ensure your mortgage allows for lump sum payments - you can use your tax refund or other lump sum payments to further accelerate debt repayment.
Review your income needs - consider your sources of income for ages 65 and 66 and determine whether a slight adjustment to your savings plan today may be appropriate to increase your income from savings in the first few years of retirement.
Avoid major investment changes - do not shift your investment mix in an attempt to generate higher returns in your current portfolio as a result of these changes. Your future income needs and your risk tolerance led to your current investment decisions, and those carefully considered plans should not be changed without a complete review of your overall investment portfolio.

*Each week, Harris/Decima interviews just over 1000 Canadians through teleVox, the company's national telephone omnibus survey. These data were gathered in a sample of 1,116 employed Canadians from September 14 - 21, 2011. A sample of this size has a margin of error of +/-2.9%, 19 times out of 20.

CIBC is a leading North American financial institution with nearly 11 million personal banking and business clients. CIBC offers a full range of products and services through its comprehensive electronic banking network, branches and offices across Canada, and has offices in the United States and around the world. You can find other news releases and information about CIBC in our Press Centre on our corporate website at www.cibc.com.

SOURCE CIBC