The Fragile Decade – five years before, and after, retirement

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One of the most important things you can do in the five years leading up to retirement is manage your expectations for how you’ll live after you stop working.

If you haven’t worked with a planner or taken steps to set aside and invest a solid portion of your working income, you may not be aware that you’ll probably have less monthly income than you currently enjoy.

And, while some older Canadians choose to work a bit longer to stave off this income shift, that’s not an option for everyone.

There is good news, of sorts, for those feeling financially unprepared to retire – you’re not alone.

A 2018 study of investors worldwide by research firm Schroders finds pre-retirees expect to spend about 34% of their retirement income on basic expenses; food, clothing and housing costs.

In reality, though, the study finds they spend closer to 50%. On the bright side, it says that while pre-retirees anticipate spending 13% of monthly income on healthcare costs, in fact they’re only spending 10%.

Financial planners often refer to the five years before, and five years after, retirement as The Fragile Decade, because the period is plagued by fears about future income adequacy. Pre-retirees fret they haven’t saved enough, while new retirees fear their spending habits are outpacing their savings.

Try a dry run

Many financial planners suggest people five years away from retirement decide on a post-retirement spending budget, and over a six-month period restrict themselves to that spending level.

The exercise can quickly show them whether their retirement savings level is adequate.

During the trial period, they’re advised to keep track of the things that push household spending over budget, and try to figure out if they’ll be able to live without them after retiring.

Equally important is to take stock of things they’re not currently spending on – like prescription drugs that are covered by a workplace benefits plan – to determine what new costs will enter their budgets after they leave work.

The experience will be eye-opening and can spur people to ramp up their savings in the remaining years before retiring. Not a bad thing, given government statistics show Canadian savings rates have been more or less in decline since the 1980s.

Besides, it can’t hurt to save more. The worst thing that can happen is having more money to spend when there’s time to enjoy it.


CPP Investment Board, Investing Today for Your Tomorrow.

The content on this site is provided for information purposes only. CPPIB is not a financial advisor, and the content on this site does not provide financial advice. Every person’s financial planning needs are different. For advice on how you should prepare financially for retirement, please consult a credentialed professional financial advisor.

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