Retiring early is a compelling idea, but for most people, it’s an unattainable dream. In fact, more people are working at older ages than was generally expected just a few years ago.

Layer in the fallout from the global financial crisis and even more 65-plus workers may be compelled to stay on the job. The federal government, faced with a looming bulge of non-working seniors, is strongly backing the trend. The greyhairs in the adjoining cubicles could soon even include many seniors who’ve left the workforce and then returned.

This is not just a Canadian phenomenon; it is one of the many global effects of the crisis. Indeed, the Organization for Economic Co-operation and Development reports that pension funds throughout the OECD experienced an average negative return of 21.4% in 2008. And, notwithstanding the recent market recovery, the OECD report says, pension assets remain about 14% below their December 2007 levels.

Not only did stock markets take a thumping, but the returns on fixed-income investments have been hit hard, too. Data from the Bank of Canada show that at the beginning of 2008, a one-year GIC was returning slightly less than 3%; current rates are less than 0.3%.

With returns like that, it’s no surprise that many Canadians may be reconsidering their retirement plans. Indeed, a survey carried out by Ipsos-Reid Corp. for Royal Bank of Canada’s wealth-management division last spring found that about 30% of baby boomers said their retirement would be delayed due to recent market conditions. Of those, 43% said that they expected a one- to two-year delay, while 37% foresaw a three- to five-year delay, and 9% expected to put off retirement for more than five years.

Rebuilding a shattered nest egg is just one reason that people may return to work after retiring or delay retirement. Just as there are rewards in working beyond purely financial ones for people that aren’t on the verge of retirement — personal fulfilment and a sense of purpose — these things can be just as meaningful, if not more so, for older people. Additionally, some firms may prefer to keep their experienced employees on the job in some capacity rather than providing costly training to younger workers, who may then be more likely to leave for a better offer.

Indeed, there are many reasons for people to work for longer than they have in the past. Research from Statistics Canada finds that between 1991 and 2007, the proportion of near-retirees planning to leave the workforce before age 60 declined by about 4%, while those expecting to work beyond age 65 increased by 7%.

StatsCan also found that Cana-dians are following through with these plans. The average retirement age in Canada declined steadily for 20 years, from age 65 in 1977 to 60.9 in 1998; then the decline stopped, and it began rising again, reaching 61.4 in 2008. Additionally, the gender gap in retirement ages has narrowed in that time, from a two-year gap back in 1977 (the average man retired two years later than the average woman) to less than a one-year gap in 2008.

RETIREMENT AS A PROCESS

More telling are the employment stats for those over age 65. According to StatsCan, there were 416,500 employed people over age 65 in 2008. This is up from less than 300,000 just five years ago. Back in 2001, just 5.9% of people aged 65 and over were employed. In 2008, the employment rate for this group had shot up to 9.8%.

Women in particular are much more likely to be working after age 65 these days, compared with just a few years ago. In 2001, the employment rate for woman over 65 was 3.3%; in 2008, that rate had doubled to 6.6%. For men, the rate is also up notably, to 13.8% in 2008 from 9.1% in 2001.

In the years ahead, these numbers can be expected to swell. According to the RBC survey, more than half of baby boomers expect to continue with some sort of employment after age 65 (13% expect to keep working full-time, and 40% expect to stay on part-time).

Indeed, StatsCan research has found that for many people, retirement is a process rather than a singular event. It concludes that many people keep working in some capacity for two or three years after they begin collecting a pension; and many people who stop work entirely return to the labour force at some point.

@page_break@Although more people apparently intend to work past the traditional retirement age, governments have a good reason — from a social policy perspective — to encourage longer working lives, too. A country with an aging population, such as Canada, can be expected to face labour shortages, weaker economic growth and greater strains on public finances as a result of demographic trends.

Already, the number of those aged 65 and older has been growing as a percentage of the population. Back in 1986, seniors represented 10.5% of the total population. As of 2007, that figure was up to 13.4%; and the share of seniors will increase notably in the years ahead as more members of the baby-boom generation reach retirement age.

MORE INCENTIVES TO WORK

Indeed, a C.D. Howe Institute report projects that — assuming current fertility and immigration rates, and continued modest increases in life expectancy — the old-age dependency ratio (the proportion of those who are 65 or older to those who are of working age) will grow to 46.3% by 2057 from slightly less than 21% in 2007.

Demographic pressure such as this suggests there is an interest in having people work longer. Governments have begun facilitating this with a variety of social policy measures, such as doing away with mandatory retirement. In most Canadian provinces, mandatory retirement practices are now considered a human-rights issue, and forced retirement can be regarded as discriminatory.

Additionally, there have been efforts to decrease the incentive to retire by tweaking the income tax regime. In the 2007 federal budget for example, the government changed the rules to facilitate “phased retirement” by allowing employees to continue accruing pension benefits even after they have reached pensionable age and are starting to draw on those benefits.

This followed a move in 2006 to allow pension-related income-splitting by spouses.

The 2008 budget unveiled the tax-free savings account, giving people another option for accumulating savings, without some of the age-related limitations of RRSPs.

And, earlier this year, the federal government announced some changes to the Canada Pension Plan that, among other things, creates more flexibility for people to start collecting CPP while also continuing to work. (See story on page B18.) All these measures may increase the appeal of a longer working life.

The C.D. Howe Institute report suggests that increasing the standard retirement age would alleviate some of the economic pressures that typically accompany an aging population: “Delaying the normal age of retirement could help both workforce growth and old-age dependency in the near term.”

Whether people are working longer by necessity or by design, the decision brings its share of complications for their financial affairs. The possibility that employment income will factor into the mix of government-administered retirement benefits (CPP, old-age security, etc.), pension income, and RRSP withdrawals is going to affect how people should be arranging their finances.

Although longer working lives may complicate financial planning, the personal financial, emotional and broader social benefits may more than outweigh the added headaches. Early retirement may still be a compelling idea, but many Canadians are already looking toward age 65, and beyond, for their own retirement. IE