The Ontario Securities Commission (OSC) recently released a survey that looked at the retirement readiness of Canadians 50 years of age or older to understand the experiences and expectations of retirees and pre-retirees.  The study addressed several topics, namely, the current financial situation of retirees and the expected situation for pre-retirees, the depth of financial planning and knowledge of retirees and pre-retirees, and the preparedness of Canadians 50+ with unexpected events and their impact on retirement plans.

OSC survey unveils Canadians retirement planning habits

The survey’s respondent base was 1,500 Canadians 50 years of age or older, of which 878 Canadians were currently retired and 622 Canadians not yet retired. Fieldwork was conducted from March 1 to April 18, 2023. To see the survey’s findings in full, click here.

One of the seminal takeaways from the report was that individuals may not have enough set aside for retirement, more specifically, approximately 50 % of pre-retiree respondents were not confident in their knowledge as to how much they would need to sustain themselves in their retirement years. This paper will examine this finding and highlight why taking a systematic approach to building wealth over the long term has proven to be a successful approach.

Among investors pursuing long-term goals like retirement, a milestone number is oftentimes affixed in their mind – if they have 3 million dollars, all would be well! - as it provides a measure of surety and psychological safety. To that end, the OSC’s survey does capture that Canadians 50 years of age and older do utilize the various savings vehicles available to them (see Chart A), with the Tax-Free Savings Account and Registered Retirement plans/funds being popular.

However, the survey’s findings regarding the investment products owned by this cohort paint a puzzling picture; as a material percentage of respondents indicated that they currently do not own any investment products (see Chart B).

Chart A

Chart B

Source: Ontario Securities Commission, ‘Profiles of Retirement’, January 2024

In looking at the responses to both questions, it can be gleaned that some respondents may be utilizing their savings vehicles as mediums for holding cash and cash equivalents, not necessarily investment solutions that can compound wealth over time. In turn, if this takeaway is extrapolated to the broader Canadian populace of at least 50 years of age, the implication would be that there are many individuals that are not adequately invested.

Why retirement planning requires more than just cash

As mentioned previously, while many individuals may have a milestone number affixed in their mind for retirement, how they go about reaching said goal is an important question, as putting aside cash for the future is not a sufficient course of action.

Instead, creating a sustainable investment plan that allows for gradual and progressive growth over time is a time test approach. Investment products provide investors with exposure to stocks, bonds, and other financial instruments capable of growing their wealth over time and generating additional income. As observed from the following chart, having consistent exposure (i.e. remaining invested) to equity and fixed income markets have resulted in a better long-term performance than remaining in cash.

Navigating retirement planning in Canada through ETFs

Through investment strategies, such as Dollar Cost Averaging, investors are encouraged to remain invested and systemically invest fixed amounts of money at regular intervals to increase their unit ownership in a fund or portfolio (more units are purchased when prices are low, fewer when prices are high). This approach will prove beneficial to investors over time, as the value of their investment increases. Furthermore, by having a diversified portfolio, clients can have comprehensive exposure to different asset classes, leaving them less susceptible to a market downturn in any one particular investment space; but being able to participate and benefit from the growth in other areas.

Through investment products, such as exchange-traded funds (ETFs), individuals can access portfolios capable of helping them achieve their long-term goals, such as savings for retirement, in a higher probabilistic fashion. Investment solutions such as the Horizons Seasonal Rotation ETF (Ticker: HAC) provide tactical exposure to equities, fixed income, commodities and currencies during periods that have historically demonstrated seasonal trends. The premise of the fund’s investment strategy is broad markets and sectors may earn higher returns during certain periods of the year when compared to other periods of the same duration. HAC seeks to gain exposure to those broad markets and sectors during their favourable market seasons. The manager consistently engages in this opportunistic rotation strategy throughout the year.  

Alternatively, the IA Clarington Loomis Global Allocation Fund ETF (Ticker: IGAF) is an unconstrained solution that invests across multiple asset classes, sectors, regions, countries and currencies in pursuit of a strong total return. In equities, the manager believes that investing in companies that exhibit the alpha drivers of quality, intrinsic value growth and valuation can help create long-term outperformance potential. With fixed income, their approach is to be selective in bond issuers that exhibit strong fundamentals with resilient business models.

And for individuals that just want broad exposure to equity markets, the Vanguard S&P 500 Index ETF (Ticker: VFV) and Vanguard U.S. Total Market Index ETF (Ticker: VUN) are suitable options.

The importance of investment education

In conclusion, investment products provide individuals with access to wealth generating assets that will aid them in achieving their long-term goals, such as retirement. With a material number of respondents indicating that they currently do not have any investment products, there is an opportunity for education and guidance as to how these solutions can aid them in shaping and realizing their future goals.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.