According to a recent survey conducted by BMO Retirement Institute, less than half of all Canadians over the age of 55 have a plan for post-retirement income in place. Follow-up surveys by BMO helped identify some of the key psychological reasons for this lack of retirement planning. According to BMO, identifying these factors can help Canadians nearing retirement better plan for their futures.
One of the main reasons respondents delayed retirement preparation was the desire for immediate gratification.
Eighty-one percent of survey respondents cited that the main reason they had procrastinated saving for retirement was to address current needs and wants rather than set aside those funds for their future wants and needs.
Another psychological reason behind inadequate retirement preparation was feeling overwhelmed with information and decisions. This is referred to as paralysis of choice, and 36 percent of survey respondents reported that being overwhelmed with information and not knowing where to begin saving had resulted in delaying retirement planning altogether.
The final reason identified by BMO was denial or invincibility; just 30% of respondents acknowledged the possibility that they might outlive their savings.
Based on these findings, BMO Retirement Institute listed a number of recommendations to help Canadians overcome psychological barriers to retirement planning and be more adequately prepared for retirement. These include:
- Start early. Canadians should start saving for their retirement well before they actually plan to retire. Saving a little early on is much easier than trying to save a large amount as retirement draws closer.
- Budget for retirement. Making and sticking to a budget that includes retirement savings is an important part of retirement planning. Setting financial goals for retirement is also important.
- Take advantage of your employer’s pension plan. Many employers offer retirement plans. If you work for a company that provides a pension plan, enroll in the plan and make sure you understand how it works.
- Learn more about RRSP and RRIFs. Make sure you understand how Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) work, including how they are taxed, when you can start withdrawing, and the minimum amount you must withdraw each year.