Retirement Planning & Recession-Proofing
Written by Paul Williams

Friday, December 13th, 2019

If you're celebrating your 57th birthday this year, congratulations: You're a member of the largest cohort in Canadian history marching towards retirement.

There are over 5 million Canadians, born from 1953 to 1962, either retiring or preparing to retire. Canada has never seen anything like this baby boom retirement juggernaut.

What's the Potential Impact of a Future Recession on these Canadians?

First off, a recession is defined as significant declines in industrial and agricultural production, trade, incomes, stock markets, consumer spending, and levels of employment.

How significant? In Canada, the 2008-2009 recession saw unemployment peak at 8.3% and Gross Domestic Product declined by 3.3 percent.

Everyone Goes Through Recessions in their Working Lives

For example, I survived three recessions in my working life. Here's some perspective on living through a recession as you prepare for retirement.

First, remember that recessions are temporary. The 2008-09 recession lasted seven months followed by over 10 years of growth. While we all feel the anxiety and uncertainty brought by recession, clearly recessions affect people differently.

Canadians have social security programs. There's universal healthcare, and the Canada Pension Plan complimenting federal programs such as Old Age Security and the Guaranteed Income Supplement.

Although the Canada Pension Plan shouldn't be your only plan, for someone retiring at age 65, the 2019 maximum payment amount was $1,154.58 per month.

That's stable income. Another source of stable income? Income from private pensions. In 2017, 60% of Canadians 65 and older received private pension income.

What About Investments?

Income from investments is an important source of income for about half of all retired Canadians.

The TSX Composite Stock Index lost more than a third of its value in 2008 as Canada lurched into recession. However, that was followed by returns of 30.7% and 14.4% over 2009 and 2010.

“Recessions won't stop just because I retired," an old colleague told me. "The true task is to develop a plan to manage through them while maintaining a reasonable lifestyle." Part of that plan is to take a balanced approach to investing and avoid extreme positions. And remember the only people who suffered lasting damage in 2008 were those who sold at the bottom.

A long-term financial plan is vital in preparing for economic bumps in the road.

Is the Family Home a Pension Plan?

In a 2018 study of Canadians aged 55 and older, one in two have either already downsized or plan to downside.

Many retiring Canadians are cashing out, realizing a significant tax-free capital gain, and downsizing to smaller, less expensive communities. Others are leaving the country entirely.

While it's human nature to hunker down during an economic downturn, according to at least one U.S. pundit: “People who purchase property in the direct aftermath of a recession… tend to do quite well on their purchase prices, and can then ride the value of the property upwards as the economy rights itself again," says real estate broker Steven Gottlieb in a recent article.

Another Option: Keep Working

And if all else fails, there's work to fall back on. Maybe it's not your lifelong career, but there are opportunities for older Canadians to dabble in semi-work, or semi-retirement. Canadians are simply working longer: the average age of retirement is 63.8. Twenty years ago it was 60.9.

In this recession primer, I've presented a lot of data regarding social security, investments, real estate and work. I'd like to conclude by reminding readers that retirement is not about data. It's important to not get too caught up in the worry of a recession and all the negative headlines.

Continuing to enjoy your life, spending time with family and partaking in hobbies will keep you from making emotional decisions that could affect your retirement.

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