Downshifting: To Boost Retirement Income, But Also To Keep Doing What You Love

Downshift (verb): change a financially rewarding but stressful career or lifestyle for a less pressured and less highly paid but more fulfilling one; slow down or slacken off.

The term downshift is becoming more and more popular with younger workers who wish to reduce their stress load, spend more time with their spouse, kids or extended family, and many are willing to accept less pay to do so. The downshifting trend is synonymous with the ‘quiet quitting’ movement which entails staying in one’s current job but putting no more effort into their job than necessary, maintaining current income at the expense of future downsizing or a lack of promotions. US surveys have shown (1, 2, 3) that this type of behaviour is being exhibited by one-quarter to half of the population. Obviously downshifting and/or quiet quitting tends to split opinions as the industrious folks see this behaviour as childish or disingenuous while others note the potential mental health benefits or better match between effort and compensation. While downshifting is alive and well, apparently, for younger workers, the potential for downshifting for older or soon to be retired workers is worth discussion.

Many older workers in their 50s and 60s truly enjoy their work and get a lot of satisfaction from it. Some of the enjoyment may come from a sense of accomplishment in doing/completing the work, some may come from the workday’s structure keeping them out of trouble, while some may come from maintaining work relationships with both colleagues and clients. Whatever it is that you take from your work, we know one thing for sure, working longer is good for our health and longevity, as it keeps us moving and engaged in our communities. A meta-analysis by the National Library of Medicine showed that working later in life provides neutral to beneficial overall health status, with the greatest benefits seen for males who are working part-time or reducing to part-time work in jobs that are of average or higher quality and reward. Not only does downshifting, rather than retiring, potentially boost your eventual retirement income, it is good for you!

What does downshifting look like for workers approaching normal retirement age? One of the major reasons why people retire, especially people who enjoy their work, is the daily grind. Getting up early five days a week. Commuting to the office. Attending meetings (especially the less essential ones). Paperwork, paperwork, paperwork. These activities are the ones that become more unbearably exhausting as our bodies start to ache and push us to throw in the towel. What if we could structure our downshifted role so that we were able to focus our efforts on what we value most about our work, and what our company, colleagues and clients value most about our work? Or, what if we change parts of our work to something that allows us to work fewer hours or at our own pace and complement the needs of our company and colleagues (e.g. shifting to an advisory role, helping train fellow employees, take on specialized projects only).

This concept brings to mind the ’Role Model and Leadership’ scene from Moneyball, where the team’s older star player comes to terms with his career longevity and buys into the idea of shifting responsibilities given his relative strengths as a veteran player. “I want to milk the last ounce of baseball you got in you, and you want to stay in the show. Let’s do that…You’re smart, you get what we’re trying to do here. Make an example for the younger guys, be a leader.”

Before calling it a day and retiring, it is worth asking yourself:

• What does retirement look like?
• What do I like about work, what don’t I like about work, and what would the perfect job look like?
• What would it take to work a few more years and fully enjoy it, even more than retiring outright?

Sometimes the answer is working fewer hours doing the exact same thing as before. Sometimes the answer is not doing certain activities. Other times the answer is an evolution of one’s job.

Deciding to downshift, and determining what that looks like, is the hardest part of the equation. Business owners and the self-employed often have an easier time downshifting as they are their own boss and can call the shots. Corporate types may have a harder time downshifting as corporate structures tend to be rigid, and the decision to downshift may ultimately not be your call. That said, it may be worth discussing this type of change with your bosses and HR department, especially if the alternative is you leaving outright and the company losing your talent and experience. Some employers may be accommodative and progressive enough to recognize the value that you could bring to the company and colleagues, albeit at a slower pace or in an altered role. A negotiated downshift could benefit both the employer and employee while outright retirement may not be in either party’s best interest.

In addition to the potential health benefit and the sense of meaning, downshifting and delaying retirement comes with a notable financial benefit. Every year you delay your Old Age Security (OAS) benefits past age 65, your annual OAS benefits increase by 7.2%, compared to your age 65 entitlement. Every year you delay your Canada Pension Plan (CPP) benefits before age 65, you avoid a 7.2% reduction in your age 65 benefit per year, while every year you delay your CPP benefits past age 65 your CPP benefits increase by 8.4% per year, compared to your age 65 entitlement. Similar benefits are often seen when delaying employer pensions as well as delaying Social Security benefits (for our American and cross-border clients and friends). In addition to larger government benefits and employer pension amounts, delaying your retirement by downshifting results in later withdrawals from retirement accounts to fund lifestyle expenses, allowing investments to grow, and fewer overall years of withdrawals, both of which add to retirement income.

It might worth considering a downshift as part of your retirement plan. At Steele Wealth Management, we’re always happy to adjust your retirement projections or run through various scenarios so that you can feel comfortable with your retirement, whatever you want it to look like!

News and our views

• Resurgent Inflation Expectations At Odds with Banking Crisis. Rates of inflation around the world are steadily declining but recent inflation data showed that inflation perked up once again in March in the UK. Strong labour markets, especially in the US, are sure to keep service sector inflation elevated. Further adding to inflation worries, a surprise OPEC production cut, and resulting spike in oil prices, does no favours for central banks’ battle against inflation. The crux of the US regional and EU banking crisis is an asset-liability mismatch which is worsened by high short-term interest rates, which central banks use to control inflation, and low long-term interest rates, which are mostly driven by long-term inflation expectations.

Our Take: A need for higher short-term interest rates to control medium-to-long-term inflation will further aggravate the asset-liability mismatch for select banks around the world. This also further incentivizes depositors to invest the funds currently held in their bank account in relatively attractive money market funds and US Treasury or similar bonds. The recent banking issues in the US and Europe highlight the difficulty that central banks face in engineering an economic soft landing. Raising interest rates too high could result in a financial crisis and deeper recession while not raising interest rates enough could result in a period of high and entrenched inflation and economies could face a deep recession anyway as a result. It seems likely that central banks will remain steadfast in their fight against inflation, even if it causes a more typical recession, by historical standards. A balanced approach to investing is likely the best bet, as it usually is, while central banks face this difficult situation.

• Toronto Home Sold Without Homeowner’s Consent. While living abroad and renting out their family home, a Toronto couple discovered they were victims of identify fraud and their home was sold without their consent or knowledge. Their case highlights the risk of identify fraud in real estate transactions as the industry only requires one piece of government issued photo ID, which are vulnerable to forgery. Some real estate industry stakeholders are pushing for multi-factor identification which would involve providing photo ID, a credit report search and checks on a related cell phone number to verify all are congruent with the individual in question.

Our Take: Thankfully in this couple’s case, they should be able to recoup losses through filing a title insurance claim, but the hassle and disruption to their day-to-day lives will surely be significant. The buyer of their home will likely get to keep the home so this couple will need to find another place to live. While this couple was imitated without their knowledge, this is a stark reminder to be wary of people you don’t know, and emails or calls from people you don’t know, as you can’t be sure of their intentions. Another seemingly new type of fraud in the post-COVID era is fake job postings where fraudsters attain personal information posing as HR staff of your future (fake) employer and use that information for fraudulent purposes. While older folks tend to be seen as the primary targets of fraud, people of all ages can fall victim to fraud. Steele Wealth Management takes pride in safeguarding your investment assets and providing you with financial peace of mind now and in retirement. While it can make transmitting personal information more time-consuming and complicated (sorry about that), using encrypted email to transmit clients’ personal information is essential to protect your information. We are always happy to provide a second opinion about situations in other areas of your life that you suspect could be fraudulent or make you feel uncomfortable in general.

Just for fun

• Over the last century, America has proven that it is well suited to win over hearts and minds across the planet with its brands and media. Maintaining a retail presence on the other hand, even on the turf of its closest ally and geographic soulmate, has proven difficult. In March, Nordstrom announced that it would shutter its Canadian stores. Nordstrom’s exit from Canada, following Target’s exit in 2015, will surely make US retailers much less ambitious to enter the Canadian market. We feel we speak for all Canadians when we say, you can keep your mall-based retail stores as long as you bring us In-N-Out Burger (no commitment yet) and Shake Shack (expanding north as of 2024)!
• The 2023 NHL playoffs will be missing a familiar face. After 16 consecutive years of playoff showings, Sidney Crosby and the Pittsburgh Penguins came up short this year. Prior to this year, the Penguins had the longest active playoff streak in the NHL, NBA, NFL and MLB. Much to the shame of Leafs fans, the new longest active NHL playoff streak (at 7 showings including 2023), is shared by the Maple Leafs, who haven’t done much with those showings, and their archrival Boston Bruins, who have prevented the Leafs from progressing on 2 of those showings. Leafs aside, the LA Dodgers now have the longest active playoff streak across all major North American sports at 10 showings.
• Mandatory RRIF withdrawals in an age of historically below average fixed income returns? A new C.D. Howe report highlights the disconnect between seniors’ preference for safer and more stable investments like fixed income and historically low rates of return provided by these securities. While seniors tend to have liquidity needs somewhat in line with current minimum RRIF withdrawal requirements in their early years of retirement, people are living longer and the current minimum RRIF withdrawal requirements pressure seniors to completely deplete their savings in old age, and possibly before the end of life. Government rules must adapt to human reality, hopefully before it causes too much distress for some of our society’s more vulnerable.