Key steps to engaging baby boomers in retirement

Currently in their 50s, 60s and 70s, baby boomers cover a wide age range — and their workplace pension plans are equally diverse.

So determining what retirement looks like for this generation and helping them prepare is a significant challenge for employers.

A good starting point is examining the pension world in which boomers currently live. While some older boomers will retire with a defined benefit plan, it’s more likely that most of this generation saved into a defined contribution plan and/or a variation of a DB promise, such as a frozen DB plan for some portion of their employment or a target-benefit plan.

Read: Canadians over age 55 most concerned about maximizing retirement income: survey

This eclectic pension rainbow is the direct result of the industry continuously performing a balancing act across baby boomers’ working lifetimes. Decades ago, when interest rates were high and markets were strong, the prospect of a DC plan growing at double-digit returns was more attractive to a then-young working boomer compared to a DB promise that was far down the road.

At the time, DB plans were enjoying surpluses and the Canadian pension industry was less regulated than it is today. Also, the move from DB to DC looked like a win-win situation for baby boomer plan members and employers: the plan sponsor accessed or shared the surplus with the members, while employees traded their DB pension for what appeared to be a fast-growing DC plan.

Today, on the other hand, the pension industry is heavily regulated, interest rates are lower and markets are unstable. Most plan sponsors have either re-designed their DB plan or completely abandoned it. Capital accumulation plan sponsors are concerned about their members’ retirement readiness and the boomers are either near or have passed their accumula­tion period. The balancing act is helping this genera­tion into retirement, given the cards they’ve been dealt.

Read: Baby boomers value retirement planning tech almost as much as millennials: survey

But to better understand what baby boomers need as they transition into retirement, it’s useful to look at some of the key attributes of their generation. Generally, boomers are prone to a work-life imbalance, and they’re motivated by money, being valued and needed. They’re positioned to become the beneficiaries of the largest intergenerational wealth transfer in Canadian history as they inherit the wealth of their thrifty ‘silent generation’ parents. But as parents them­selves, they’re also likely to financially support their millennial children well into adulthood. As investors, they’ve learned to be more balanced, as reinforced by the investment options and teachings of their work­place plans. Also, most boomers have adopted their children’s technology habits.

With all of these attributes in mind, how can the industry help baby boomers enter the next stage of their life?

Time for a change

With exciting times ahead for the hard-working boomer generation, the industry can reward them by finding innovative ways to offer support through the retirement years, just as it did during their working life. However, a number of legislative changes are necessary to facilitate this, including:

  • Changes to the tax rules to accommodate deferring decumulation of registered funds beyond age 71;
  • A more advanced annuity market;
  • Safe-harbour rules to encourage CAP sponsors to extend coverage to their retired members;
  • A more transparent and regulated financial advisory market; and
  • Better educational tools that address boomers’ retirement needs.

Retirement is a lifestyle

Once upon a time, retirement meant the end of a productive working life followed by a time of retreat, withdrawal and perhaps seclusion. Retirement for boomers is a far cry from that. In fact, it should be viewed as a new beginning, rather than the end of working life.

Read: Why a little bit of retirement planning knowledge can be a dangerous thing

For a generation that has lived to work, preparing for lifestyle changes in retirement is equally as import­ant as the financial considerations. Employers can play a role in helping baby boomers identify these changes and develop an action plan to address them. The loss of identity and purpose derived from work is also a major hurdle to overcome in retirement. Employers can encourage boomers to take stock of what provides them with satisfaction at work and then try to replicate these conditions in activities or projects in retirement.

The keys to a successful transition include shaping a vision of retirement, having realistic expectations, focusing on all of the attractions of retirement and blending them with the positive experiences of a lifetime of working.

Time to manage the money

Burning boomer questions

According to a 2017 survey by RBC, the top six questions on the minds of Canadian baby boomers at retirement are:

46% — Will I have enough money?

26% — How do I make the most of the money I’ve saved?

20% — How will I deal with inflation?

19% — What lifestyle changes should I expect?

15% — How will I manage debt or earn income while I’m retired?

13% — Should I downsize or sell my home?

Compared to their parents’ generation, which was frugal with money after living through the Great Depression, baby boomers need to be savvy about budgeting and managing their money. This becomes even more important as they enter the retirement phase and their paycheques are no longer rolling in.

Read: Canadians’ retirement confidence drops as life expectancy rises

Employers with boomers in the planning stages of retirement can help them create a current budget and one in anticipation of retirement to quantify how much income they’ll need. This is a good option for tracking expenses that are lower or higher or completely disappear in retirement, with the end result viewed as the individual’s retirement income target. But this budgeting exercise must be continued into the retirement years, adjusted and monitored regularly, since spending patterns may change over time.

As for investing, boomers generally value and trust their financial advisors. They’re more concerned about the performance of their investments than the fees they pay. Boomers who have access to decumulation options in their workplace plans or under a group umbrella can greatly benefit from a factual and unbiased explanation of the advantages of these options compared to what’s available in the retail market.

Addressing fears

Retirement is a big change for any generation and, just like any change, it’s often accompanied by fear. Here are some common fears and ways employers can help to address them:

  • Will I have enough to live on? Encouraging boomers to prepare a budget and list expenses is a good start to tackling this fear. It also helps to determine what trade-offs, if any, they’ll be required to make.
  • Will I run out of money? There are a few levers here that employers can highlight, including increasing savings, reducing income needs, dipping into capital, adjusting legacy plans, defer­ring Canada Pension Plan and old-age security payments until age 70 or considering buying an annuity later in life.

A well-balanced education plan

A good education plan will help members take action. Employers can create a well-balanced program that focuses on boomers’ retirement years, both from a lifestyle and financial perspective. Traditional approaches, such as detailed explanations of how the workplace savings plan works, investment options or savings strat­egies, will be more effective if they’re put into a practical context and linked to retirement. The plan, which should be delivered in bite-sized modules, can also include technology platforms.

Read: The benefits of helping employees set a retirement budget

By considering all the changes in the pension industry since baby boomers entered the workplace, as well as the unique characteris­tics of this generation, employers can craft a plan that engages and guides employees towards a retirement that’s right for them.

Bita Jenab is an actuary and the founder of RetirementWorks Services Inc.