2007 General Social Survey Report
The retirement puzzle: Sorting the pieces
Archived Content
Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please "contact us" to request a format other than those available.
Grant Schellenberg and Yuri Ostrovsky
Financial industry, the top source of retirement advice
What you should know about this study
Knowledge of public retirement income programs
Canadians look for information as they draw closer to retirement
People with more invested in RRSPs are more likely to seek financial and retirement information
Immigrants less likely to report understanding Canada's public retirement income programs
Almost one in six pension plan members don't know what type of plan they have
Financially informed Canadians more confident that their retirement income will be adequate
Multivariate models
Conclusion
Planning for one's financial future involves resources and skills. Information and data about markets and investments, such as indices, rates of return, currency valuations, and interest rates, surround us every day. In addition to literacy and numeracy skills, which are essential to filter, select, interpret and apply this information, financial management skills are also needed to navigate consumer markets. Mortgages, credit lines, investment accounts, cell phone plans and lease and purchase choices are just some of the products that come with a bewildering variety of options. Technological advances have further altered the financial landscape, with on-line banking and investing perhaps the most obvious examples. In this complex environment, consumers must "…be actively engaged if they are to manage their finances effectively."1
Do I have enough for retirement? is a question that older workers ask themselves before leaving the workplace. Answering it, however, is not simple. It requires knowledge of public retirement income programs and the benefits they offer, as well as estimates of future income from registered retirement savings plans (RRSPs), pension plans and other savings. Here too the landscape is complex, with pension plans available in a 'bewildering variety of forms'.2
While much attention has been focused on the financial resources of Canadians approaching retirement, much less has been devoted to their 'informational resources.' To what extent do Canadians have the information they need to plan for retirement? Do they understand Canada's public retirement income programs? Do they have a clear sense of the retirement benefits they will receive from their pensions? This article uses data from the 2007 General Social Survey (GSS) to glean insights on the informational resources of non-retired Canadians aged 45 to 59, referred to in the article as near-retirees (See "What you should know about this study" for a complete description).
Financial industry, the top source of retirement advice
Respondents to the 2007 GSS who had not yet retired were asked several questions about financial and retirement information:
- From whom if anyone do you typically get financial advice, including advice about retirement planning and programs?
- How well do you understand public retirement programs such as CPP or QPP or Old Age Security? Is it very well, somewhat or not at all?
- During the past 5 years, have you gathered retirement information? For example, talked with a consultant or attended a course?
Questions were not asked, however, about the quality of the advice received or whether it was acted upon.
Results from the 2007 GSS indicate that most near-retirees (71%) receive financial advice from at least one source. Often—in about half of cases—this comes from the financial industry, with 30% of near-retirees receiving advice from financial planners or investment counsellors, 15% from employees at financial institutions, 6% from accountants and 3% from brokers (Chart 1). About 17% receive financial advice from family members or friends and a further 15% from other sources, including employers, media sources, publications, and federal and provincial governments. Finally, 29% of near-retirees report that they do not typically receive financial advice from any source. Respondents could choose more than one option; thus the total exceeds 100%.
In addition to looking for financial advice, some 45% of near-retirees reported gathering retirement information (i.e., taking a course or talking with a consultant) some time over the previous five years in preparation for retirement.3
What you should know about this study
Data for this paper were drawn from Statistics Canada's 2007 General Social Survey (GSS). The target population for the 2007 GSS was all persons 45 years of age and over residing in Canada, excluding residents of Nunavut, the Yukon and Northwest Territories, and full-time residents of institutions.
The 2007 GSS used a subjective definition of retirement. Individuals who said their "main activity" during the previous 12 months was "retired" were identified as retirees, as were individuals who provided a positive response to the question "Have you ever retired from a job or business?" A definition of retirement was not provided.
Our analysis of near-retirees is limited to GSS respondents who 1) are aged 45 to 59, 2) have not previously retired and, 3) are either employed or had employment during the 12 months preceding the survey.
Based on GSS results, there were 7.2 million Canadians aged 45 to 59 in 2007. Of these individuals, 80% were either currently or recently employed at the time of the 2007 GSS and had not previously retired. Virtually all respondents in this group (over 99%) answered the GSS questions regarding their retirement plans.
Of the 45- to 59-year-olds excluded from our analysis, about one-quarter were working at the time of the survey, but said they had already retired at least once before (accounting for 4.9% of all 45- to 59-year-olds). Just over one-quarter had retired from the workforce and were no longer working (accounting for 5.6% of all 45- to 59-year-olds). About half were no longer working but said they had never retired—mostly women who left the labour force earlier in life (accounting for 9.7% of all 45- to 59-year-olds). Adjustments have not been made to account for any possible selection bias introduced into our sample by the exclusion of individuals who have already retired. Overall, our sample of 9,241 respondents is representative of approximately 5.7 million non-retired Canadians aged 45 to 59.
Chart 1
Three in ten near-retirees typically receive financial advice from financial planners or investment counsellors
Knowledge of public retirement income programs
Most near-retirees say they have some knowledge of Canada's public retirement income programs, with about one-fifth (19%) saying they understand these programs 'very well' and about one-half (55%) saying they understand them 'somewhat.' However, about one-quarter (25%) of near-retirees report that they do not understand these programs 'at all.'
There is some overlap between the 29% of near-retirees who do not typically receive financial advice and the 25% who do not understand public retirement income programs: 11% of near-retirees neither typically receive advice nor understand 'at all' these programs.
A number of factors are associated with the likelihood of receiving financial advice, understanding public programs and gathering retirement information. These include how close one is to retirement, financial resources, employment and demographic characteristics. The relationships between these characteristics and the informational resources of near-retirees are highlighted in Tables A.1 through A.5.
Table A.1
Informational resources of near-retirees, by financial characteristics, Canada, 2007
Table A.2
Informational resources of near-retirees, by demographic characteristics, Canada, 2007
Table A.3
Informational resources of near-retirees, by labour market characteristics, Canada, 2007
Table A.4
Predicted probability of informational resources among the near-retirees by various demographic and employment characteristics, Canada, 2007
Table A.5
Percentage of members of employer-sponsored pension plans who report that they don't know what type of plan they have, Canada, 2007
Canadians look for information as they draw closer to retirement
Individuals who are close to retirement, are more likely to seek out retirement-related information. The data show a strong relationship between the number of years until the planned age of retirement and the likelihood of receiving advice or information. For example, 83% of individuals who plan to retire within five years typically receive financial advice from at least one source, while this is the case for 67% of those whose retirement is 15 or more years away (Chart 2). Likewise, those who are closer to retirement are more likely to say they understand public retirement income programs somewhat or very well and to have gathered information about retirement in general.
However, it is necessary to take financial resources and other characteristics (such as age, employment, income) into account, as these are associated with both the timing of retirement and knowledge about retirement issues. When these factors are accounted for, the relationship between fewer years to retirement and greater likelihood of receiving advice and gathering information generally remains significant, but is somewhat weaker than descriptive statistics indicate (Table A.4).
Overall, it appears that individuals tend to search for information as they draw closer to retirement. Whether they leave themselves enough time to act on the advice or information they receive is an important issue, but one for which the GSS does not provide information.
Chart 2
Canadians tend to seek out information as they draw closer to retirement
People with more invested in RRSPs are more likely to seek financial and retirement information
Both financial and informational resources are important for a successful retirement, raising the question of how the two are connected. For example, one might expect RRSP contributors to be most likely to obtain financial advice, seeking it out in order to effectively manage their own portfolio or receiving it from the financial agents who manage their accounts. Indeed, the vast majority (88%) of individuals who have contributed to an RRSP in the past five years and have accumulated RRSP assets of over $100,000 receive financial advice from at least one source (Table A.1). Three-quarters of them receive advice from the financial industry.4 In contrast, just over half (52%) of near-retirees who have not recently contributed to an RRSP5 receive financial advice from any source, and only about three in ten receive advice from the financial industry.
Similarly, the share of near-retirees who understand public retirement income programs 'somewhat' or 'very well' and the share who have gathered retirement information are both positively associated with RRSP contributions and accumulated assets. The same relationship holds for household income, which is not surprising given that RRSP contributions are related to income.
Again, these differences could also be attributable to other factors. For example, compared with individuals who have lower incomes and few RRSP assets, those with higher incomes and greater assets may be closer to retirement and hence more likely to seek out retirement-related advice and information. When these factors are accounted for, however, the strong and significant association between financial characteristics and informational resources remains. For example, compared with near-retirees who have not recently contributed to an RRSP, the likelihood of receiving financial advice from any source is 13 percentage points higher among those who have contributed and have accumulated assets under $50,000 (Table A.4). The difference between non-contributors and contributors with assets of more than $100,000 is 22 percentage points.6 Likewise, even after accounting for the number of years to retirement, a significant relationship remains between informational resources and household income (Chart 3).
Chart 3
Financial and retirement information varies across household income
Immigrants less likely to report understanding Canada's public retirement income programs
Knowledge of retirement programs varies widely among individuals of different backgrounds and characteristics. Most notable is the difference in the extent to which immigrants who arrived in Canada since 1990 and their Canadian-born counterparts receive financial advice and information (Table A.2). While almost three-quarters of Canadian-born near-retirees typically receive financial advice from at least one source (73%), this is the case for just half of post-1990 immigrants (50%). Likewise, these immigrants are about half as likely as the Canadian-born to receive financial advice from the financial industry (27% and 53% respectively). Immigrants who arrived since 1990 are also less likely to say they understand Canada's public retirement income programs or to have gathered retirement information. Large differences between these groups remain when other factors, such as household income and RRSP contributions, are taken into account (Table A.4).
Chart 4
Immigrants less likely to understand Canada's public retirement income programs
Informational resources also vary with other demographic characteristics, such as self-rated health and marital status, although these relationships are at least partly attributable to differences in financial and employment characteristics. An in-depth analysis of the association between informational resources and self-rated health is beyond the scope of this paper, but further research on the topic is warranted.
Almost one in six pension plan members don't know what type of plan they have
The 2007 GSS also asked respondents if they had a pension plan through their employment and if so, if their pension benefits "…are calculated using a formula (such as 2 percent of your income per year of service) or vary depending on how the pension funds are invested?" Response categories to this question include 1) calculated using a formula, 2) vary depending on how pension funds are invested, 3) other and 4) don't know. It is the 'don't know' category which is of particular interest to this analysis.
Accurate information about one's employer-sponsored retirement plan is often considered key to deciding the timing of retirement, the role personal savings wil play and the allocation of one's portfolio between safe and risky investments. Such information is especially important since, unlike many registered pension plans (RPPs), group RRSPs require workers to decide whether to participate and, if so, how much to contribute. An earlier Statistics Canada study found that 4% of full-time permanent employees in the private sector reported having an RPP or group RRSP, but were employed by a firm that provided neither.7
Evidence from the 2007 GSS shows that of the near-retirees with pension coverage (paid employees only)8, 16% — or almost one in six – do not know what type of plan they have (Table A.5). Across industries, such uncertainty is most prevalent among plan members in consumer services and professional and business services (at 21%) and least prevalent among those in public administration (12%). Furthermore, uncertainty is most common among employees with fewer years in their jobs and lower annual incomes.
Financially informed Canadians more confident that their retirement income will be adequate
To conclude, an important question is whether the informational resources discussed above have implications for retirement planning and transitions. This is a difficult question to answer given that retirement may still be several years away for GSS respondents in the 45 to 59 age group. However, some insights can be gained by considering near-retirees' expectations about the adequacy of their retirement savings. Specifically, near-retirees were asked:
When you do retire, how adequate do you think your household income and investments will be to maintain your standard of living? Will it be more than adequate, adequate, barely adequate, inadequate or very inadequate?
Most near-retirees (68%) expect their retirement income to be adequate or more than adequate to maintain their standard of living, 19% expect it to be barely adequate, and 9% less than adequate.9 But do individuals who receive financial advice, understand public retirement income programs and gather retirement information feel more confident about their financial future than those who do not?
To answer this question, a statistical model was constructed to estimate the relationship between a broad range of variables and expectations of the adequacy of retirement income.10 Of central interest are the associations between informational resources and these expectations. Results from Table A.6 show how people's knowledge about retirement issues changes their expectations of whether their retirement income will be adequate or not. For example, the model predicts that about 74% of near-retirees expect their retirement income to be adequate or more than adequate.11 Individuals who received financial advice from any source were 7 percentage points more likely to expect their retirement income to be adequate or more than adequate than those who did not receive financial advice.
Table A.6
Predicted probability of expected adequacy of retirement income by informational resources
Broadly speaking, then, financial literacy is associated with an increase in the likelihood of expecting retirement income to be adequate and a decrease in the likelihood of expecting that it will be inadequate.
Multivariate models
Three outcome variables are used in the multivariate models. First, logistic regression models are used to identify the factors associated with the likelihood of receiving financial advice from any source, receiving financial advice from the financial industry, and gathering retirement information. Second, an ordered logit model is used to identify the characteristics associated with understanding Canada's public retirement income programs very well, somewhat well or not at all well.
The model pertaining to gathering retirement information is limited to the 75% of near-retirees who answered the questions about their planned age of retirement.
Demographic predictor variables in the model include sex, age, age squared, marital status, educational attainment, immigration status and health status. Employment characteristics include whether the person is self-employed or not, unionization, job tenure and occupation. Financial characteristics include household income, RRSP contributions in the previous five years and the value of accumulated RRSP assets, housing tenure and number of years to planned retirement. All models are calculated using bootstrap weights to correct variance estimates for survey design.
Results from the multivariate models in Table A.4 and Table A.6 are shown as 'marginal effects' for ease of interpretation. The marginal effects show the predicted probability of an outcome (e.g. expecting retirement income to be less than adequate, barely adequate or adequate) between categories of an independent variable. For example, our model shows that if other characteristics are held at their mean values, it is predicted that individuals not living in a married/common-law relationship are 3 percentage points less likely to receive financial advice from at least one source than those living in a married/common-law relationship.
Finally, an ordered logit model is used to identify the factors associated with the likelihood of expecting one's retirement income to be adequate, barely adequate or less than adequate. In addition to the predictor variables listed above, receipt of financial advice, understanding of Canada's public retirement income system and gathering retirement information are also included as predictor variables.
Conclusion
While much attention is devoted to the financial resources Canadians accumulate en route to retirement, much less is generally said about their informational resources. Results from the 2007 GSS show that about one in three near-retirees do not typically receive financial advice from any source, with this proportion far larger among groups such as lower-income households and recent immigrants. The same holds true for knowledge of public retirement income programs. While most near-retirees say they understand public retirement programs and the basic structure of their pension, a significant proportion do not. Furthermore, individuals who do not receive advice and information regarding retirement express greater uncertainty about their financial future than those who do, even after other characteristics are taken into account. Our data do not make clear whether the absence (or presence) of such information will have significant impacts on the capacity of individuals to make a successful transition into retirement. However, it does appear that some of these near-retirees may be lacking the information resources needed to navigate a financial marketplace characterized by increasing complexity and sophistication.
Grant Schellenberg is a senior analyst and Yuri Ostrovsky is an analyst in Business and Labour Market Analysis Division, Statistics Canada.
Notes
-
Braunstein, Sandra and Carolyn Welch (2002). Financial Literacy: An Overview of Practice,
Research, and Policy. Federal Reserve Bulletin (November). - Frenken, Hubert (1995). Pension plan potpourri. Perspectives on Labour and Income, Vol. 7 #2 Summer, 20-27. Statistics Canada, Catalogue no. 75-001-XIE.
- Only near-retirees who stated a planned age of retirement were asked if they had gathered retirement information in the past five years.
- The financial industry is defined as financial planners or investment counsellors, employees at financial institutions, accountants and brokers.
- Throughout this article, 'recent' RRSP contributions are those made within the five years prior to the survey.
- This is based on the 'marginal effects' of RRSP characteristics when other characteristics in the multivariate model are set to their mean values.
- Morrissette, René & Zhang, Xuelin (2004). Retirement plans awareness. Perspectives on Labour and Income. Statistics Canada, Catalogue no. 75-001-XIE.
- This portion of the analysis is restricted to paid employees. Under pension legislation, self-employed operators of unincorporated businesses are not eligible to participate in RPPs. The 2007 GSS does not contain information on whether self-employed respondents operate incorporated or unincorporated businesses.
- The remaining 3% say they do not know if their retirement income will be adequate. See Schellenberg, G. & Ostrovsky, Y. (2008). The retirement plans and expectations of older workers. Canadian Social Trends, 86(September). Statistics Canada, Catalogue no. 11-008-XIE.
- The explanatory variables included in the model are gender, marital status, education, immigration status, health status, industry, class of worker and unionization, job tenure, years to planned age of retirement, pension coverage, RRSP contributions and accumulated assets, household income, understanding of public retirement income programs, receipt of financial advice and gathering of retirement information. Two versions of the model were run, one including receipt of financial advice from any source and one including receipt of financial advice from the financial industry.
- The predicted probabilities are calculated with the independent (or predictor) variables in the model set to their average values.
- Date modified: