The New Retirement Reality

The retirement landscape has transformed dramatically over the past few decades. Gone are the days when you could count on working for one company, receiving a comfortable pension, and settling into a predictable retirement routine. Today’s new retirement reality demands a different approach—one that acknowledges longer lifespans, changing work patterns, and the need for multiple income streams. Whether it’s the decline in defined benefit pensions, the impact of market volatility, or the rising costs of healthcare, retirees face unique challenges that their parents never encountered. 

But it’s not all doom and gloom. With proper planning, understanding, and an open mind, this new chapter can be more flexible, purposeful, and fulfilling than ever before.

Show Notes: The New Retirement Reality

Hey there, welcome back to The Heart of Your Money. Today is episode 125. Today I’m going to chat about the new retirement reality, exploring how retirement’s changing, what that means for us, and why creating sustainable income sources has become more important than ever. I’ll talk about some of the challenges today, like market volatility, rising costs.

A little bit about healthcare expenses, but I’m also going to look at the bright spots, the ways we can take control, some positive trends that are happening. It’s not all doom and gloom. And I’m going to share some examples that show we can move forward. You can be confident and, with a little bit of planning, successful.

So let’s jump in there today. Retirement’s different than how it looked 30, 40, 50 years ago. Back then you worked a set number of years, often at one company. And when you retired, you relied on a pension to carry you through. And I’m thinking back to my grandparents. He worked at one place his entire career.

I don’t know if it was 30-some years, 35, had a defined benefit pension. Grandma stayed home. She never worked outside of the home. She spent her time feeding four hungry boys growing up and cooking and cleaning and doing all the work. And they led a very—I wouldn’t say overly comfortable—but a very comfortable retirement.

They were happy. They did some traveling in their early years. And so it was enough. But now people are living longer. I mean, they lived long, but back then a defined benefit pension—he got the most bang for his buck by living until 94—but we’re living longer now, staying healthier and often still working or engaging in things that keep us busy well into our seventies or even eighties.

And so retirement is no longer a single defined chapter. I’m thinking of it as a journey. And part of this shift is the concept of a new retirement. It’s not just about a nest egg that sits there untouched. It’s about generating sustainable income that can last ideally for decades. And this is where a shift in mindset comes in—from thinking of our savings as something we save and then never touch to actively managing income streams that align with how we want to live and turning on the tap.

And that can be hard for some. This is both exciting and a bit daunting. That shift in mindset will affect everyone differently. I can share, I have permission—uh, wink, wink (you can’t see, but I’m actually winking)—I have permission that Ian, my husband, is retiring, and I have a bit of a story to share with you.

And it’s a bit of an ongoing joke in our house. He’s got about a month left from his career in the RCMP, and then he’s going to retire. And we have plans. We—the royal “we”—uh, he has plans. He’s going to be busy and utilize his skills and a sense of purpose, but he’s definitely going through a rollercoaster of emotions by not working full-time anymore.

Having a pension and having to turn on that tap—those emotions are definitely up and down. So at the office, I received a few big boxes of Amazon deliveries. And I’m like, “What is this?” I take them home and I ask, and I find out he’s ordered a lifetime supply of socks and underwear. Like, the guy wouldn’t have to do laundry for probably a year.

And it was a very interesting experience of me asking, “Why did you buy so much?” He’s—and it’s literally the one sentence he came back with was, “Well, I’m going to be retired.” And we just, I just laughed and I was like, “What does that mean?” He goes, “Well, I don’t know. Like I need to buy everything now, make sure I got enough to last.”

So there’s this weird mindset. Analyze that how you will. And, you know, we chatted about it and you know, is that a sense of scarcity? Is that a sense of “you’re not going to have a full paycheck”? I don’t know. We’re still unpacking all of that and you can analyze it. That’s one of the examples of some of the emotions that are going through. And I just wanted to share with you that anything goes.

And so we can’t say that that’s wrong or you’re not going to feel that, or it’ll be easy breezy. There’s going to be so much—um, changing mindset is something that you and I can try to work on and we can have some control over. So in talking with Ian about how he’s feeling and managing the emotions and feelings, it might feel like we don’t have control of our emotions, but these are something that we are in control of. He’s—you know, and we can chat about and actually do something about it—but there is a part where there’s something that we don’t have control over.

And that’s the new reality of retirement. And that is the decline of defined benefit pension plans. And so the things that we don’t have control over are the social benefits, meaning CPP and OAS. Those are things that the government has control over. Our employer has control over what kind of pension they offer.

That’s what I mean by things that we don’t have control over. And the new reality of retirement is that there’s a decline of defined benefit pension plans. You can’t go to your employer and then have all these choices to pick—”Ooh, I want this kind of pension plan.” No, you get what you get at your employer.

It’s whatever they offer. In 2010, there were 19,000 registered pension plans in Canada. That has now decreased to 16,000 in 2018. Now that’s old stats for you. If—and I haven’t looked, but I’m curious—I have a feeling that if I looked and dug and found some pension plan for 2024 data, I bet that number of 16,000 has decreased even again in seven years.

And so what we’re seeing is this trend as a decline. That means there’s more of a responsibility on you and I to manage our own retirement savings. We have to take care of our own selves here. We can’t rely on our employer to take care of us anymore. It’s not going to be enough. Now, this is both exciting and a bit daunting, and this new retirement reality is that you are in charge of your own savings.

We cannot rely on somebody else. It can enhance our retirement and be a good portion, but we can’t count on it as the sole thing. So another change that we’re seeing in retirement planning today is that we’re living longer. It’s not unusual for people—for me to do planning and we’re talking about 30-plus years of having to plan their retirement income base. And that’s amazing, but it means we need more resources to sustain us over time.

Longer retirement isn’t just about finances either. So that’s the math part. It’s about lifestyle. Many people today don’t just want to sit back. They want to travel, work part-time, volunteer, find purpose in new ways. This idea of continuing to have meaningful goals and pursuits can actually extend into retirement.

This was interesting because I feel like we’re behind the times. So I have a story of someone who came into the office—worked at one of our main employers, crown corporations here in our province—and wanting to scale back. And this is actually more than one person. I’ve got probably, I can count, a half a dozen stories in the last little while of this experience.

They come in and they want to dial back the hours. They want to take back some of the pressure, but they’re not ready to quit full, full, full—you know, full retirement. They want to work part-time. They say, “You know what? I just want a few more hours to do the things that I want to do.” And so they go to their director, they go to their management, and there is no place for them. And they’ve been there at that organization 30-some years, they have great knowledge, great experience.

They’re probably highly valued and needed in training purposes. And the answer and the trend is no—you cannot, we do not have part-time or contract work for you. It is a no. Pretty essentially my words: all or nothing. And so I feel like there needs to be a change. And so I have to share because I found this and I thought it was so interesting that there’s been a push for part-time work in retirement in other countries.

And it’s working. So several countries have implemented policies that encourage or mandate the provision of part-time work opportunities for retirees. So that means those handful of people in my office, they go to their director, they go to that employer and say, “Hey, listen, I am retiring in the next few years,” or “I am wanting to retire.”

And then the employer should come back and say, “Sounds great. Let’s try and get you—can we do one year part-time easing into retirement so that we can then have someone learn exactly what you do or fill your spot?” You name it. And so there’s countries that are realizing that this is important. And so they’re making it mandatory that there’s part-time work opportunities for retirees who choose to continue working. Right now, that door’s being slammed and I just—it hurts my heart for the emotion because the person’s not ready, but also I’m thinking—I run a business as well.

And I’m trying to put myself in the shoes of that business, which happens to be a crown corporation, but think of the loss. Think of everything they’re losing by not allowing that person to now share their wisdom to train other people and leave on such a great note. And it’s a win-win.

So Japan, it’s in response to its aging population, that’s one of the reasons they’ve enacted laws requiring employers to offer continued employment to workers beyond the traditional retirement age, and so that involves re-employment on a part-time basis. They can remain in the workforce, so that’s one way.

The other one is in Singapore—they actually have a Retirement and Re-employment Act. That means that there’s a certain age in there and a policy that they have to allow them to continue in part-time or flexible roles. European Union—I don’t know very much about this, I just glanced and saw this too—that in several EU countries, there’s policies that facilitate part-time work for retirees.

And so they allow the combination of partial pensions with part-time employment, enabling older workers to reduce their working hours while receiving a portion of their pension benefits at the same time. And so I just think that we’re not seeing the big picture here. And so that allows people to gradually wind down their careers instead of just stopping abruptly, which is not great for everybody, but it’s also not great for the company to lose that person.

So we’re seeing this mindset grow here too. And that’s where we know, hopefully there’s going to be a little bit more flexibility because I’m seeing so many people that are wanting to retire, but still continue on in some sort of capacity.

So, I want to talk about a few of the challenges that are top of mind right now for people. And that is market volatility. Markets go up and down and that can be nerve-wracking, especially for those in retirement who rely on their investments. So if they have a defined contribution pension plan and they’ve taken over, they have their own RSPs, locked-in RSPs, you name it.

Just this past year—I mean, we’ve seen unpredictable things can happen. It bounces around. Everything looks great. And then the next day there’s 300-point loss or dip or 1%. And it just keeps moving. When we look at a big graph, the market rate of returns, it grows—it’s there growing over time, but you have to live with the daily fluctuation and a little bit of the whiplash.

And when your income depends on these investments, it is so natural to feel anxious. But here’s the thing: Managing volatility is possible. Diversifying income streams, things like bonds, dividend-paying stocks, or even certain annuities in a certain place—I mean, annuities is a whole conversation in itself.

Their fees are very high. The rate of return is very low. But it does serve a purpose for certain types of things, but generally you have to be later in life for it to be a benefit. But there’s—that’s one diversification way. There’s things that are more stable and it’s about having a tap of income streams that you can turn on and adjust as needed.

This approach helps create that cushion against market swings. Another challenge out there is inflation. And we all felt that one in 2022—it’s a big one. Costs are rising across the board. And even if we have a solid retirement income plan, it’s a reality we have to prepare for. And one strategy we’ve been using is adjusting withdrawal strategies over time, which helps manage taxes and inflation.

The other thing is—with good planning (not to give myself a pat on the back, but), your fellow certified financial planners out there—we’re actually putting inflation into your retirement plan, meaning that every year we’ve added an increase: two and a half, 2.7, 3%, whatever it is. You’re actually accounting for that and putting in the future expenses.

So we’re planning for that. So you can—I know it sounds complicated. It is, but with careful planning, you can actually navigate it without sacrificing your lifestyle. Being mindful though that you ought to plan for it. That’s a challenge. The other is the cost of healthcare and planning for it.

This one’s a little bit sketchier to nail down of when and what and how much. It’s a major consideration. Medical expenses tend to increase with age and it’s something we can’t ignore. Even if we’re healthy now, we all know that unexpected health issues can arise and these can have a big financial impact.

More and more, I’m hearing stories of certain drugs for certain diseases that aren’t covered and people have to pay out of pocket certain expenses. Now, I like to think—putting on my rose-colored glasses right now, if you can tell—is that our government and healthcare is starting to realize that things are getting crazy and they’re starting to try and cover more and more.

Therefore, having health benefits in retirement is going to be super important. I just had a conversation—geez, it was last week or the week before—the quote: “I don’t want to spend my retirement worried about my medical bills.” Right? Isn’t that so true? That sentiment is so common. We can build that buffer now, planning for those expenses, having the “what if” conversations about saying, “Okay, what bucket would we take from if this happens?”

And what asset do we have if something happens? And that can really bring peace of mind. And that long-term care cost in there, that’s a tough one because it’s something none of us want to need, but having that same conversation—what bucket would we take from—and making it work, planning early when we’re healthier and having these conversations makes sense.

It makes you feel a little better. Now there are some positives. There’s more flexibility in planning right now. And so it’s not all challenges and doom and gloom, this new retirement reality. But we have to realize that we have to take care of those challenges. We have to talk about them, plan for them.

And then some of the bonuses that have happened is, when Tax-Free Savings Accounts started, that was a game changer. So much flexibility and choice than ever before that it means that younger people coming up the ranks—as you can add in there and keep putting in—you can use that in retirement and planning. And it’s gonna—it’s just a game changer. It’s a fantastic thing for retirees. Using your Tax-Free Savings Account for retirement, it’s tax-free, giving more options, drawing income when you need it.

Another positive trend that people are talking about is that we’re actually talking about retirement planning and doing the planning early. Gone are the days when it was a hush-hush topic you dealt with last minute. People are having conversations about money where they’re meeting with advisors. They’re realizing, “Hey, I need to get in front of this,” talking about it with family and they’re getting ahead of it. And this makes a huge difference when it comes to feeling prepared and confident.

Remember retirement isn’t a one-size-fits-all. Some people dream of travel. Others want to start a small business in retirement. Others just want to spend time in the garden and with family or volunteer. There’s no wrong way of doing this. It’s what fits you and your values.

So what’s the takeaway today? Well, retirement today requires more planning, more adaptability, and an open mind. There’s risks—volatility, inflation, healthcare costs—but there are also opportunities to turn retirement into a chapter of life that’s amazing, meaningful, active, and fulfilling. It’s about making a plan that can adapt with you. It takes a bit of work, but it’s worth it.

So what does it look like? What would retirement and your retirement reality look like for you? Do you have income streams that you haven’t considered? Have you planned it out? And are there some hobbies and passions you want to explore? Remember you’re not alone in this. This new retirement reality might have its ups and downs, but with the right approach, we’ve got it. It’s good. Thanks for joining. If you have any questions, send me a note: [email protected]. Talk soon.