Canadians not saving enough for retirement

There are lots of studies being done these days about Canadians’ views of, and preparedness for, retirement.

There are lots of studies being done these days about Canadians’ views of, and preparedness for, retirement.

Are Canadians saving enough to create a sufficient income in retirement and has the recently-passed economic recession changed their retirement plans?

An article by David A. Dodge, Alexandre Laurin and Colin Busby published in the National Post says Canadians are not saving enough to fund the level of consumption they expect in their retirement.

With the exception of the working poor, Canadians need to save anywhere from 10 per cent to 21 per cent of their gross earnings between the ages of 30 and 65 in order to create a retirement income equal to 70 per cent of their pre-retirement income.

“Calculations suggest that Canadians (either individually or through employer plans) are currently saving far less than they need to save to provide for pensions approaching 70 per cent — or even 60 per cent — of pre-retirement earnings,” the authors wrote.

“For (example), average combined RPP/RRSP savings rates are roughly seven per cent of earnings for working Canadians under the age of 60.” The situation raises some important questions.

The first is whether Canadians are willing to give up current consumption during their working lives to save enough to reach that pension replacement income level?

“Their actions suggest they are not,” the authors said.

“This may be simply because they thought they were saving enough to meet this goal or (because) conventional assumptions about the desired trade-off between consumption during working years and post-retirement consumption are wrong for many or most Canadians.”

The second question is whether Canadians are willing to work longer and retire later?

Some recent RBC polls have found that Canadians are not meeting their retirement goals and expect to be working longer in some capacity to help fund their retirement.

Fifty-three per cent of Canadians feel they are somewhat short or nowhere close to meeting their retirement goals. More than half (57 per cent) feel there is no appropriate age for retirement and the decision on when to retire should be a personal one.

Twenty-six per cent expect that part-time or occasional work will be another source of income in their retirement and 30 per cent of Canadians aged 35 to 54 expect to be working in retirement.

“The average Canadian retirement age is about 62 years but boomers are increasingly choosing to stay working or return to the workforce after retirement,” said Lee Anne Davies, head of retirement strategies at RBC Royal Bank. “It’s important for Canadians to understand and be aware of all available retirement income sources in order to make informed decisions about financing their retirement.”

A third question in the retirement issue, the authors said, involves whether public policies give the right incentives to develop the proper vehicles that will allow Canadians to manage their savings.

“Changes in public policy can certainly improve incentives for, and the efficient management of, retirement savings,” the authors said. “Canadians . . . need both adequate information and, most importantly, appropriate vehicles to provide efficient risk-adjusted management of their savings, both during working years and in retirement. But in the end, if Canadians want high incomes and consumption in their retirement years, they will have to save more of their incomes and forgo more consumption during their earning years.”

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. He can be contacted at