New strategies aim to simplify decumulation and give Canadians control over retirement savings
In a roundtable discussion hosted by Benefits and Pension Monitor and Sun Life, Anne Meloche and Michael Carter examined the challenges of retirement income.
Meloche is the head of institutional business at Sun Life Global Investments. Carter serves as the assistant vice president of product development and sponsor experience for Sun Life Group Retirement Services.
They addressed the difficulties Canadians face in transforming retirement savings into reliable income.
According to Carter, “Retirement is potentially one of the trickiest financial problems that people need to solve because there are so many unknowns.”
Concerns about longevity, financial literacy, and a lack of comprehensive retirement income solutions continue to dominate the landscape.
Although workplace pensions and employer-sponsored plans provide a strong foundation for saving, the decumulation phase – where retirees draw income from their savings – presents significant gaps.
Carter emphasized, “One of the biggest unknowns is the length of your life and how to manage that against a finite resource like your financials.”
Defined-contribution (DC) plans offer features such as auto-enrollment and target date funds to support savings, but these mechanisms are often absent when it comes to income generation.
Meloche pointed to a lack of engagement among plan members, noting, “Despite all the education and support we provide, many members don’t have a formal financial plan.”
She observed that avoidance is a common response to the stress and complexity of retirement planning, adding, “People don’t take advantage of the advice available, and that leaves them vulnerable when they retire.”
To counter this trend, Sun Life has introduced tools like the digital Sun Life One Plan, which integrates savings and provides strategies to optimize outcomes for retirement savings.
Existing solutions, such as annuities, have proven unpopular among Canadians despite their ability to provide lifetime income.
Carter explained, “Canadians have worked hard to grow their savings, and they’re not interested in giving up control of that money. They want flexibility, control, and the ability to leave something behind for their loved ones.”
This desire for control has resulted in fewer than 10 percent of Canadians using annuities, leaving most retirees to rely on drawdown accounts. However, these accounts present their own risks, including market downturns and cognitive decline.
Carter highlighted this issue, saying, “18 percent of Canadians 60 and older are entering retirement with a mild form of cognitive decline.”
In response to these challenges, Sun Life introduced the “target age solution,” a new approach inspired by target date funds.
Meloche explained, “Target date funds were created to automate and simplify investment decisions during the savings phase. Similarly, the target age solution automates and simplifies retirement income decisions.”
This solution allows retirees to choose a “maturity age,” such as 85 or 90, and automates withdrawal amounts, investment adjustments, and other factors to ensure savings last.
Carter noted, “62 percent of Sun Life’s plan members are already invested in target date funds, so offering something similar for the decumulation phase makes sense.”
The target age solution works across various account types, including RIFs, LIFs, and TFSAs, and adjusts payments annually based on fund performance and withdrawals.
The investment strategy supporting the target age solution balances returns and risk, with a portfolio consisting of 41.5 percent equities, 58.5 percent fixed income, and a mix of alternatives.
Meloche emphasized the importance of balancing fluctuation and returns, stating, “We want to make sure the money lasts while also maintaining living standards.”
Flexibility is also a key feature, with options to adjust maturity ages based on changes in life expectancy.
Meloche underscored the adaptability of the solution, saying, “This solution provides the freedom to adapt to life events—whether physical or mental health conditions – and makes sure members can exit or adjust when necessary.”
Sun Life envisions this approach becoming a universal tool for the non-guaranteed portion of retirement portfolios.
Carter added, “We believe this can turn a traditionally negative conversation about running out of money in retirement into a positive one.”
Meloche concluded by calling for industry-wide collaboration, stating, “The whole industry needs to work together to solve this.”
Sun Life’s target age solution represents a significant step forward in addressing the complex realities of retirement in Canada, offering practical, flexible solutions that allow Canadians to focus on living, not just surviving.
