Retirement market: are health products on sick leave?

By Hubert Roy | February 18 2007 06:24PM

he AXA Canada 2007 Retirement Scope report is issuing a wake-up call to Canadians nearing retirement: they are overestimating the funds they will have at retirement, underestimating their retirement years and ignoring potential health problems. To make matters worse, the industry is not selling living benefits products nearly enough.

This dire picture was painted by Robert Landry, executive vice-president, personal insurance and financial services for AXA Insurance in Canada, based on a study of 11,590 people from 16 countries in North America, Europe, Asia and the Pacific, conducted in August and September, 2006.

“Reality will be a slap in the face for people still in the workforce,” Mr. Landry warns. “The income they are counting on will not materialize and they will spend almost as many years retired as they did in the workforce.”

Another hurdle, health problems often crop up in old age, Mr. Landry points out. This is one area Canadians are underestimating. “They will have to dip into their retirement savings to pay for health care.”

It is here that the industry must step in, Mr. Landry says. “Financial advisers must make Canadians more aware of how long their retirement might last. They also need to remind their clients that they may need to withdraw from their hard earned savings to pay for treatment.”

If their savings are insufficient, he adds, advisors should point out the advantages of products such as critical illness policies and long-term care insurance. Sales efforts seem to be missing the mark. The industry is not seizing this unique opportunity, Mr. Landry insists.

He brought up the scenario of Canadians seeking treatment in the United States to speed up health care service. Even diligently set aside capital of $100,000 could evaporate overnight in such a case. That’s where the insurers’ role begins, Mr. Landry says.

“Life insurance caught the wave of baby boomers as they were starting families. We are reaching the end of the cycle. Needs are just as great for investment products, annuities or the introduction of innovative guarantees. It’s apparent in the United States and in other countries. We’re starting to see it in Canada. The wave is building,” he says.

Standard of living at retirement

The 2007 edition of the AXA Scope is quite similar to the report published a year earlier. “There are minor differences such as anticipated level of income. Canadians are slightly more optimistic about predicting the financial means that they will need during retirement. Is it because the economic environment is more favourable? Because stock markets are performing better? Or because Canadians have saved more? The answer is a bit of all of the above,” Mr. Landry says.

He also finds that the standard of living is steadily increasing from generation to generation. “Many families own two cars and four TV sets, and are constantly buying their children new clothes. They can’t keep up that pace,” he warns.

According to the AXA Scope, one third of working Canadians expect to see their standard of living decrease during retirement. All the same, they do not anticipate a ecrease in their quality of life.

The 2007 edition also finds that retirees are becoming disillusioned. Fewer feel that they have sufficient income. What’s more, the number of retirees that say that their quality of life has deteriorated after retirement has edged upward.

Most working Canadians surveyed (64%) think that their retirement income will let them live reasonably well. A positive conclusion: more Canadians in the workforce claim that they know the amount of their future retirement: 43% in the 2007 Scope versus 23% in the 2006 report.

Money is not the only factor to consider in retirement planning, the survey findings reveal. “Money is the main concern. New retirees are worried a little less once they’ve reached this stage. The money makes them happy, but it is family, sports and recreation that let them lead a balanced life,” Mr. Landry explains.

“The youngest respondents realize that they will need more money because the holes in the Canadian social safety net are getting bigger. Getting less retirement income from the government is a growing concern. The Scope brings good news and bad news. You will live longer, but it is up to you to prepare for your retirement,” Mr. Landry explains.

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