The lure of early retirement

Ann Finlayson February 4 1985

The lure of early retirement

Ann Finlayson February 4 1985

The lure of early retirement


Ann Finlayson

For 54-year-old Jean Wright the prospect of a financially secure, lei-

sure-filled early retirement was too enticing to ignore. As a result, after 38 years of service Wright retired early from her job as a personnel manager with Bell Canada International in Ottawa last April. “Normally, you cannot retire until 55,” said Wright. “I was 53 but it felt right.”

Under Bell’s Early Retirement Incentive Plan she retired with a monthly pension cheque 20 per cent higher than she would normally have received and a guarantee that all company benefits would remain in force. “I am having a ball,” said Wright.

Wright, and thousands

of other Canadians, have

taken advantage of cor

porate offers of financially alluring early retirement programs—a trend that began during the 1981-82 recession and is expected to gain renewed strength this year. For their part, employers —many of whom have not fully recovered from the recession—have devised strategies that encourage their older and usually their most highly paid employees to retire from their jobs before they reach retirement age as a way of reducing operating costs. And many Canadians are eagerly adopting the plans, despite some fears that they may not be able to adjust to the sudden inactivity of retirement or that inflation may erode their pension income. Said Barry Adamson, a consultant with Toronto-based Axmith, Murray and Associates: “As a result of economic reality, voluntary retirement will continue to be an important approach for management to control the size of staff.”

The leisure activities pursued by early retirees are as varied as their work backgrounds. Some obtain pilot’s licences; others take up weaving. As well, some retirees in their mid-50s take up new careers or become involved in lucra-

tive consulting work for their former employers. And most of them say that retiring early was the right choice to make. In Tide Head, a small community in northern New Brunswick, Louis Bursey, 56, a former schoolteacher, is enjoying a relaxed life that began when he took early retirement last June after more than 37 years in the classroom. Said Bursey, who is also active in community work: “I wanted to retire while I am still young enough to enjoy life.” And in Saskatoon former civil servant Leith Shearer, 56, retired from the federal department of communications last year after 38 years as an employee. Now active in volunteer activities, Shearer took advantage of the fact that federal pensions are indexed to inflation. As a result, he and his wife, Betty, are financially secure. Said Shearer: “We are happy.”

For employers, the major benefits of early retirement plans show up on balance sheets. The programs enable them to effect major cost savings and they provide an appealing alternative to outright firings—which can lead to costly wrongful dismissal suits ( which have

increased seven-fold in the past decade). Among the corporate leaders in the field: Vancouver-based forest products giant MacMillan Bloedel Ltd., with 12,000 employees; Metropolitan Life Insurance Co. of Ottawa with 2,800; Oshawa-based General Motors of Canada Ltd. with 45,000 workers; and Imperial Oil Ltd. of Toronto with a staff of 14,700. They have introduced plans that allow them to save as much as 30 per cent of the cost of carrying their older employees through to age 65. Last year 68 per cent of Imperial’s 220 retirees chose early retirement, and their average retirement age was 58.

In order to make early retirement plans attractive companies have to offer a wide variety of inducements. Most of the programs give older employees partial compensation for the loss of that portion of the pension that they would have received if they had worked until they were 65. Some firms also provide a onetime cash settlement that can be converted, along with the pension, into tax-sheltered Registered Retirement Savings Plans (RRSPs) and they allow retirees to remain in

company insurance and medical plans.

Still, early retirement entails major risks for workers. A common concern is that boredom—and mental and physical stagnation—will set in. As recent retiree Shearer put it: “I was concerned about not staying mentally active—that I could get under my wife’s feet.” To avoid that situation Shearer works as a part-time flying instructer, does genealogical research for himself and his friends and is the assistant manager of

the apartment building where he lives.

Inflation poses an even more critical threat. Athough prices only increased at a rate of 4.4 per cent in 1984, in the past it has ravaged the value of retirement packages. Many private pension plans are not indexed to keep pace with inflation and some employees who chose early retirement offers in the early 1980s now regret the move. Ross Armstrong, of Saltspring Island, B.C., who took early retirement at 60 from CP Air in 1982, for one, says that he is alarmed at the extent to which inflation has eroded his annual pension income. Said Armstrong: “I look at the indexed pension that civil servants get with more than a little envy.”

The past few years have also been financially harrowing for Dennis Brendon, 64, of White Rock, B.C. When the former flight controller retired from his job with Air Canada nine years ago on an $ll,000-a-year pension, the inflation rate was hovering around 7.5 per cent. “My pension,” he recalled, “looked pretty good at the time.” By April, 1981, the inflation rate had soared to 12.7 per cent and reduced the real value of his pen-

sion. “Fortunately,” Brendon said, “Air Canada agreed to increase the pension somewhat, and I had some money set aside. Otherwise, I would have had no alternative but to find another job.” Analysts say that employers, too, take risks with early retirement plans. The programs can undermine employee morale and even threaten a firm’s longterm managerial performance. According to Nicholas Simmons, a consultant with Toronto consulting firm William

M. Mercer Ltd., employees often frown on the use of early retirement incentives when they are used to get rid of poor performers. As well, Simmons said, if the plans are attractive and universally available, companies risk losing employees from their middle management ranks who they may wish to keep.

The majority of early retirements involve management personnel, but labor

leaders have also expressed concerns about the programs. In the past, many unions, including the 158,000member United Steelworkers and the 125,000-member United Auto Workers, negotiated early retirement provisions for their members in order to ensure that jobs would open up for younger people. But now there are indications that many of the jobs early retirees vacate will not be filled, even in an improved economy.

At the same time, economic planners and politicians have expressed concern that early retirement could soon become an option available exclusively to the rich. For low-paid employees without the resources to amass retirement savings, it is already difficult to live on a company pension, even when inflation is low. And if a worker has not stayed in one job long enough to accumulate a sizable company pension, it is a virtual impossibility. Women are especially

vulnerable. Many female employees lack adequate pensions, either because they are in low-paying jobs or because they delayed or interrupted their working lives to raise their families.

The gap between the relative security of managerial employees who get an early “golden handshake” and the economic hardship of older workers who lose their jobs through layoffs has also angered some political leaders. Last May, after Inco Ltd. laid off 415 workers, with an average age of 50, at its Port Colborne plant, Ontario NDP Leader Robert Rae de-

manded legislation that would guarantee the full pensions for laid-off workers over the age of


For their part, many demographers say that

when the postwar Baby Boom generation reaches retirement age, the country will have too few workers to meet the country’s economic needs and the heavy demands that an aging population will place on social services. Most Canadians, argues Toronto-based futurologist John Kettle, author of The Big Generation, will have to work well past the age of 65 simply to survive financially.


But with many corporations and governments facing modest growth prospects and under pressure to cut costs, early retirement is an effective way to help keep their operations trim. And for many middleaged Canadians who get the offer, leaving the job early has proven to be a truly “golden” opportunity. They are busy, as retiree Brendon put it, “leading the good life.”

Sharon Doyle Driedger