60% of Canadians saving for retirement, just not wisely

Savers have amassed $70,700 each and it’s mostly in cash

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Saving for retirement may be a top financial priority for Canadians but judging by how much has been socked away and how it’s invested, we’re not doing a great job at it, findings from the just-released BlackRock 2015 Global Investor Pulse Survey suggest.

BlackRock polled 2,000 Canadians as part of a larger international study and found that while 60% of Canadians are actively saving for retirement, including 52% of 25-to-34-year-olds, there’s a clear discrepancy between retirement income expectations and savings habits.

Respondents said on average they expect an annual income of $46,900 for 25 years in retirement. But those who’ve started saving have amassed on average just $70,700 in total, barely enough to cover 18 months of expenses. That number is little higher among pre-retirees aged 55 to 64 at $125,000, still likely not enough even if expertly invested.

“Retirement is one of the most important global issues that we face today, this survey reinforces that point,” Chip Castille, BlackRock’s Chief Retirement Strategist, said in a press release.

“As we contend with a decline in traditional sources of retirement income, coupled with global populations living longer, understanding the gaps and taking meaningful steps to address them is both a challenge and an opportunity. Whether it’s starting early, engaging in a workplace plan or simply understanding how much annual income you’ll need, just getting started is a powerful first step that everyone should be taking.”

The survey shows that while 47% and 42% are contributing to Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts, respectively, only 40% said they have some idea of how much money they need to retire and a full one-third said they had no idea at all. (In case you’re wondering, MoneySense crunched the numbers and found the typical middle-class Canadian couple can live comfortably on $42,000 to $72,000 a year ($30,000 to $50,000 for singles) assuming no mortgage or child costs. You can use this tool to arrive at a more specific number for yourself.)

Knowledge gap

The Investor Pulse also revealed a troubling lack of investment knowledge. One-in-four said they are clueless about their current investment options and only 36% said they are at least somewhat knowledgeable about what types of investments they should consider to maximize their retirement savings.

Nothing illustrates this skills problem better than the actual makeup of Canadian portfolios. A whopping 60% of the typical portfolio is being held in cash–far too much to meet most retirement needs when you factor in record-low interest rates and inflation. What’s more, nearly half of survey respondents (45%) said they plan to increase their cash holdings next year. The average Canadian portfolio holds just 19% in equities, 7% in bonds, 4% in property, 3% in alternatives and the rest in other asset classes.

When asked why they’re sitting on so much cash, the majority cited accessibility and/or convenience while 25% admitted to a fear of losing money and 10% said it was because they didn’t understand their options.

Scepticism about the stock market abounds, the study suggests. Less than half of Canadians (44%) agree with the statement “Investing is for people like me” and a full 51% believe investing is like gambling.

Crisis of confidence

Conservative attitudes are accompanied by concern for the future, especially among lower-income Canadians. Whereas 73% of affluent Canadians (net worths and investments of $150,000 or more) are generally positive about their financial futures, only 43% of the rest are equally optimistic, way down from two years ago.

“The results suggest that the investment industry, and investing in general, has something of an image problem among Canadians,” said Karrie Van Belle, Managing Director at BlackRock Canada. “Given recent market volatility, that might not be surprising, but there is clearly a need for a renewed commitment to financial literacy and investor education, not just to inspire confidence in the markets, but also to help Canadians realize that they do have choices.”

Only a small minority of Canadians feel the need to consult a financial advisor to help plan for long-term goals or address important life event such as an inheritance, retirement, divorce etc. According the report, 38% of Canadians currently consult a financial advisor and 21% have worked with one in the past suggesting Canadians’ approach to financial advice is often transactional in nature and short-lived. This holds true despite findings of relatively high customer satisfaction ratings for all types of advisors. BlackRock found 67% of independent investment advisor clients report they are “very satisfied” with their advisor, compared to 46% for bank branch advisors and 63% for full-service brokerage advisors.

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