When the top 20 per cent of wage earners in Canada control 75 per cent of all household wealth, leaving a bare quarter of Canada’s wealth to be shared among the 80 per cent of the rest, you can see why so few people have any savings at all.
It’s no wonder that after decades of harping to contribute to our RSPs, two-thirds of Canadians expecting to retire around 2030 won’t have a pension that will cover the bare necessities of life.
Half of all Canadian workers spend nearly every cent they make immediately. Half of Canadian workers are one lost paycheque away from financial distress, according to the Canadian Payroll Association. So forget about saving for retirement.
Savings rates for most Canadians is five per cent or less of net pay, even though we’ve been told virtually all our working lives that 10 per cent of net pay is needed to be saved for a comfortable old age.
Worse than that, almost no worker in Canada can tell you how much money they’ll need to have in their retirement account when they turn 65, in order to live the way they think they’ll want to live. The Canadian Payroll Association says people estimate they need to have between $750,000 and $3 million saved in order to retire comfortably. That’s a pretty wide margin, but even the lowest estimate is far beyond the reach of more than half of Canadian workers.
Only a small minority of Canadian workers will earn $3 million total income in their entire working lives, much less save that much.
The median income in Canada after taxes is $24,000. That means half of Canadians will take home about $950,000 or less in a career spanning 40 years full-time.
And we think we’ll retire with a million bucks in the bank?
The gap between retirement expectations of Canadians and the ability to achieve their goals is so vast for most workers that we can see why they’ve given up and hardly save at all.
Consider that Canadians will be living longer as time goes on and it becomes plain that a vast portion of Canadians will never fully retire at all. If we don’t work well into our 70s, most of us will outlive our meagre savings.
If that situation looks to you like a potential poverty time bomb set to explode in 25 years or so from now, you’re right to be concerned.
Three major changes will need to take place in some sort of combination to avoid a new generation of Canadians living their senior years on CPP plus OAS — in poverty, despite a lifetime of warning about needing RSPs.
Obviously, Freedom 55 is a myth for all except the top 20 per cent of wage earners. Unless you’re in that income group, just ignore the TV ads that show happy couples strolling the beach, all healthy and tanned. It ain’t gonna happen; you’ll be in the office for all but the last 10 years of your life.
Next, we have to change expectations about what constitutes a good quality of life. If you don’t want to be punching the clock at 75, you’ll have to learn to sacrifice now. You can learn to live on less now or you will be forced to live on far less later.
In the larger picture, society has to recognize the widening gap in income with some alarm. We cannot sustain a civil society when an ever smaller minority of Canadians holds a steadily rising majority of total wealth, while everyone else falls behind.
Greg Neiman is an Advocate editor.