According to a study by Statistics Canada, 31% of those polled between the age of 45 to 60 said that their financial preparations for retirement were inadequate. In another study by Investors Group, only 19.6% to 24.5% of non-retirees over the age of 45 were not concerned about retirement. They were the minority that felt comfortable, prepared and ready for the golden years. Everyone else (three quarters) expressed some concerns. In a study by RBC, 56% of non retired Canadians were worried that they would not be able to enjoy the lifestyle to which they were currently accustomed to. Finally, the Canadian Labour congress based on three separate surveys said as many as 73% of people were worried how much they would save for retirement.
Biggest concerns of retirement
Who can really blame these concerned individuals. After all, no matter where you turn, there are articles instilling fear into Canadians about retirement. What do Canadians have to fear?
- Pressure on government benefits – The baby boomers have done incredible things since 1946 to shape the economy, our culture and the country in different ways. With the bulk of these boomers heading towards retirement, there is a fear than governments will fall short of being able to provide effectively, retirement income. Some studies suggest that CPP will be out of surplus by 2019 and completely collapsed by 2070.
- Starting careers later because of more education (post secondary) – Canadian used to start work earlier like the age of 18 to 20 but today, many believe that you must continue the education beyond high school to get better jobs and have more opportunity. In some cases people are getting multiple degrees before they start into the workforce. As a result, we are starting to work later and therefore having to prepare for retirement later. To complicate things further, post secondary education is more expensive and people are entering the work force with more debt. It's just not easy getting ahead when you are starting behind.
- Fewer company pension plans especially Defined Benefit Plans – Pension plans have become a cumbersome benefit for corporate Canada to offer. As a result, you are seeing more Group RRSP plans being offered instead of the traditional pension plans. And then with the pension plans that remain, many are defined contribution plans as opposed to defined benefit plans. Defined contribution plans are easier to understand and manage but the defined benefit plans really rewarded the long-term loyal employee.
- Societal desire to retire earlier – In the 70's and 80's the typical retiree retired at the age of 65. The age has been a longstanding benchmark for Canadians for retirement. However, the average retirement age has been dropping over the last 30 years. Today, the average retirement age in Canada is between 60 and 61 and dropping. As a society, we all desire to retire early for the ‘best days of our lives'.
- Expect to live longer – Life expectancy is steadily increasing. The message is we are healthier and with the advances in science and technology, the trend for longer lives should continue. For most of us, that also means we have to make sure our money will last for a longer period of time.
More pressure self-funded retirement
So all of these issues boil down to the fact that we have fewer years to earn and save money and more years to spend it. Less and less of that money will come from the companies we work for and the government so more and more of our future lies in our ability to self-fund our retirement. The bad news is that savings rates in Canada have been steadily dropping over the last 25 years. Currently the savings rate is less than 2%. That means that only 2% of consumers' disposable income is being saved.
The bottom line is we have to change this statistic. We have control over our own future and it's up to us to do something about it! Take control of your destiny.