A new report from Russell Investments Canada Limited sheds light on the sources of retirement income for Canadian retirees, and examines their spending habits.

Russell based the report on its retirement research and a detailed analysis of a Statistics Canada survey of household spending.

“We believe that a financially healthy retirement is well within reach for most Canadians. However, factors such as income level, marital status, age, and retirement date must be taken into account and planned for. This latest report was designed to help Canadians be aware of these factors and stay on top of their retirement goals,” says Fred Pinto, managing director of distribution services at Russell Canada.


Over 50% of retirement income comes from government transfers

According to the report, the average annual income of retirees aged 65 to 74 is $35,200. Government transfers such as Canada Pension Plan and Old Age Security make up $18,300 of that annual income. In comparison, higher net worth retirees aged 65 to 74 with average annual incomes of $82,800 received $19,900 in government transfers.

However, these government transfers are generally not sufficient to cover all of the essentials of retirement — almost 70% coverage for the average retiree, and 39% for higher-income retirees.

For retirees with annual incomes of $35,200, over $27,100 of that cash flow was needed to pay for yearly essential expenses. Retirees with incomes of $82,800 a year spent $51,000, of their income on essentials.

“It’s critical to have enough income to cover the essentials of retirement, such as food, shelter, and transportation. And virtually all retirees also want to have enough income to cover the lifestyle expenses that make retirement enjoyable, such as travelling and dining out,” says Pinto.

“More important than what one earns in retirement is determining what one needs to spend in retirement. That’s why Russell’s ‘ELE’ retirement planning solution divides retirement into three distinct spending categories: Essentials, Lifestyle, and Estate.”

Almost 75% of essential expenses for retirees aged 65-74 related to shelter, transportation, and food.

Shelter (37%), transportation (21%), and food (18%) were listed as the largest essential retirement expenses for those in the 65 to 74 age group.

“To underestimate essentials expenses would be a great risk, since it represents the bulk of expenses in retirement – all of which will not necessarily be covered by government transfers,” says Pinto.

Top retiree lifestyle expenditures: Travel, dining-out, alcohol

Retirees with average annual incomes of $35,200 spend $7,300 on lifestyle expenses, while retirees with average incomes of $82,800 spend $20,900 on lifestyle activities.

According to Russell’s report, dining-out and vacationing are the two largest lifestyle expenditures among retirees aged 65 to 74. However, lifestyle expenditures vary, and the amount retirees spend on splurges such as vacations, tobacco products, and gaming/gambling appear more widespread than money used on essentials.

Declining expenditures in retirement

Russell research also showed that 58% of Canadians are “very or somewhat” concerned about outliving their money 10 years leading up to retirement. However, once they actually reach their retirement date, that figure drops to 38% of those who are concerned. Furthermore, only 29% of retirees are overly concerned about outliving their money after the first and second year of retirement. That number drops to 18% after 10 years into retirement.

“Retirees’ sense of financial comfort and well-being can be attributed to the realization that many household expenses are reduced or eliminated around the time of retirement, including mortgage payments, income taxes, and costs associated with raising and educating children. Another item that is often overlooked is that retirees no longer have the expense of saving for retirement,” explains Pinto.

According to Russell, household expenditures in retirement for those in the 60-64 age group totaled $38,100 — with $25,000 going to essentials, $7,600 for lifestyle expenses, and $5,500 earmarked for income tax. The retirement expenditures drop to $30,300 for the 75-79 age group.

IE