Should we worry about saving enough for retirement or are the Chicken Littles of the world making us paranoid? Dr. Sherry Cooper, executive vice-president and global economic strategist with BMO Financial Group and chief economist with BMO Capital Markets, talks about what retirement will look like in the future.

Your recent book, The New Retirement, discusses how the baby boomer generation is redefining retirement. What’s it going to look like?

‘Retirement’ is the wrong word. I think this book is really about the last 30 years of the lives of the boomers, and boomers will be far more active than previous generations of retirees. They’re the healthiest, wealthiest generation ever to have lived, they’ll have tremendous opportunity, and they have a big incentive to continue to be purposeful. So, if they love their jobs, they’re going to carry on with them, and if they don’t, they’ll see [retirement] as an opportunity to take a sabbatical and then reinvent themselves.

How will the new retirement affect the workplace and the marketplace?

There are already considerable labour shortages in Canada and, as boomers retire, the growth of the labour force will continue to diminish. So there will be tremendous demand for talent, and we will see businesses and public organizations offering a good deal of flexibility in order to entice boomers to remain on the job. But the good news is, the talent and experience that boomers have will be very much in demand. So it’s all a positive story, as far as remaining engaged and productive.

Are the baby boomers saving enough to meet their future needs?

Some are. My book points out that, in Canada, all middle-income families and below will actually get between 60% and 90% replacement of pre-retirement income from the government [programs]. So it’s only the most affluent boomers that really have to worry about amassing significant nest eggs. The people who are trying to sell you their services are telling everyone that you’re in dire straits and that no one’s saved enough for retirement, but that’s just not true.

What will the baby boomers’ retirement lifestyle look like?

It’ll vary from household to household, and that’s another important point in the book—it’s very difficult to plan financially if you don’t have a sense of where you want to live, what you want to do, how long you’re going to work…and that can have a tremendous impact on whether you need a lot of money or 50% of your pre-retirement income.

And for those that are affluent, they can use the opportunities provided by the labour shortages to reduce the burden of an enormous nest egg—obviously, the longer your work, the less time you have without income. Later in life, we’re typically at our highest earning years relative to expenses, so we’re able to put more money away than earlier in life. So taking advantage of those last 5 years, let’s say, makes a huge difference.

Are retirement savings coming from personal savings or the government, or both?

Well, it’s different for every person. That’s the point—there’s no one size fits all. And for middle- to low-income families, that’s simply from the Canada Pension Plan (CPP), Old Age Assistance and the Guaranteed Income Supplement. So just the mandatory government programs will cover roughly 60% of median household income.

Are you seeing a shift from defined benefit to defined contribution plans?

Definitely, outside of the public sector. The private sector is increasingly shifting, and even the ones that still have defined benefit plans are often restricting the plans and making them a lot less generous—they’re capping the income levels, or there are significant penalties now for early retirement. And for those who have a DC plan, the market risk and not having enough capital put away is on the employee rather than the employer. So it’s a lot less certain—and just another reason why people should work longer.

Is this shift having an impact on retirement lifestyles and expectations?

Well, it certainly should—whether it actually does or not again depends on where you are in that income spectrum. But the wealthier you are, the more likely it is that you understand that your RRSP and the CPP aren’t going to be enough. And again, the comfort I take in this is that these are the very people that can afford to save a good deal of money in the last decade of working.

What do you think about the idea that we’re not going to have enough money saved for retirement?

That’s not true. Again, depending on what you’re planning on doing and where you’re planning on doing it, you could probably do with significantly less income than you realize. Between downsizing, moving to less expensive locations, not having to save, not having to pay for the CPP or employment insurance or all of the costs associated with commuting and the workplace, it could be actually less expensive than people realize. Plus, when you’re not working, you have more time to cook at home rather than go to a restaurant and to do some of the things around the house that you wouldn’t ordinarily be doing yourself.

What is the employer’s role?

In the future, fewer and fewer people will be working at one company for their careers. For sure, people have to be able to transport their defined contribution plans wherever they go. And I think that it would make sense if employers forced people to opt out, rather than asking them to opt in, because another time when you can save is early in your career—before mortgages and kids. And people don’t realize that even a small amount of money builds like crazy over a 40-year period. Plus, everybody should get the matching contribution if the employer gives a matching contribution, because it’s free money.

I think employers, though, are going to be pretty ruthless about all of this, because these plans were not constructed with the assumption of people being in retirement for 30 years; they were constructed when life expectancy was only a few years beyond the day you stopped working. And now, businesses just can’t afford it anymore.

What can employers do to prepare?

I think employers have to realize the kinds of labour shortages they’re going to experience—they’re going to be brutal. And there’s no way they can replace all the boomers with the next generation coming in, because they’re too few in number. So employers ought to be thinking carefully about how they can encourage productive boomers to continue to work. And if that means allowing them to do more work at home or at the cottage, or job-sharing, or part-time, or flex time, all those things have to be considered.

Do you have any other messages for employees or employers?

The parts [of my book] that I liked the most and found the most interesting were the ones regarding health—mental and physical health—and aging and lifestyle issues. There’s so much more to the last 30 years than just saving for retirement, and the healthiest people and the happiest ones in old age are those who have continued to be very active, mentally and physically.

When you’re 40 and you talk about freedom 55, it sounds great. But when you’re 55, you realize: Wait a minute—I’m still very healthy and active. What would I do all day? Do I really want to spend the next 30 years playing golf or watching television? So there’s a major rethink. And, given that businesses really need talent and experience, it’s fortuitous.

Alyssa Hodder is managing editor of Benefits Canada.

For a PDF of the shorter version of this article that originally appeared in the magazine, click here.

© Copyright 2008 Rogers Publishing Ltd. A shorter version of this article first appeared in the March 2008 edition of BENEFITS CANADA magazine.