Whether millennials, generation Xers or baby boomers, all generations in Canada appear to be facing challenges saving for and financing their retirement.
A recent report from Templeton Investments Canada focussed primarily on generation X (age 34 to 54) but sprinkled throughout are results which indicate that both older and younger generations also are encountering retirement saving challenges.
Matthew Williams, executive vice president of Franklin Templeton Investments Canada, says there are two reasons for this reality.
The first is increasing longevity.
“The parents of gen Xers are living longer and spending more of their money on things like health and travel and therefore probably won’t be leaving as much money behind as they otherwise might,” Williams said in an interview.
The second reason is rising interest rates.
“Canadians have increasingly large levels of debt which become harder to carry as interest rates rise,” Williams notes. “We still are in a relatively low interest rate environment, but as rates rise people need a dependable income to pay it off which puts a much greater strain on their finances and ability to save for retirement.”
The report found that more than a quarter of Canadian gen Xers haven’t saved anything for retirement. Nearly half claim that their income is too low and more than a quarter of them say expenses such as the rising cost of living, student loans, mortgages, paying down debt and aging parents are too high for them to think about saving for their retirement.
“Generation X is struggling to save,” Williams says. “This may have been the case for some baby boomers but their saving grace was that some were able to sell in a high-flying housing market and many had pensions. Generation X may not be as lucky given that they have hefty mortgages they can barely afford, especially if interest rates increase, and some do not even have home equity as they are renting.”
Saving for retirement also is a struggle for pre-retirement boomers and for the younger millennials (ages 22 to 37).
Twenty per cent of pre-retiree boomers say they have saved nothing for retirement, which probably accounts for why almost three quarters of them are stressed and anxious about their retirement savings and investments.
Nearly half of millennials say they haven’t saved anything for retirement either. Twenty eight per cent live with their parents or their spouse’s parents and 47 per cent who do not maximize or know their annual contribution limits in all of their registered accounts claim their income is too low to save for retirement.
“This reinforces the importance of financial planning advice that takes retirement savings into account and incorporates tools like setting up automatic contributions with whatever you can afford when you can afford it to help ensure you ae better prepared for the future,” Duane Green, President and CEO of Franklin Templeton Investments Canada said in a news release.
Williams recommends millennials prepare a budget, scrutinize their discretionary spending, and start tucking some money away in a Tax Free Savings Account, even if only $10 or $15 a week. For generation Xers he suggests paying down debt as quickly as possible while interest rates still are low.
Williams urges everyone to take full advantage of any workplace or group pension plans to save, especially if they have an employer matching contribution feature. “The compounding effect of the employer’s matching contributions over time can have a significant impact on your retirement savings,” Williams says. “It’s important for people not to leave free money on the table.”
One thing that holds true across all generations is the correlation between working with a financial adviser and saving for retirement. Canadians who have never had an adviser are more likely to experience stress and anxiety about their finances and investments than those who do have an adviser.
In fact, Canadians who are not retired and have an adviser are three times more likely to have saved more than $100,000 for retirement that those who currently don’t have one.
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.