Never mind, Canadians are saving enough for retirement

Retire comfortably on less than 70% of pre-retirement income



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saving enough for retirement

(Nash Photos/Getty Images)

Don’t panic, says a new report by the C. D. Howe Institute, Canadians are actually saving enough for retirement.

“The greatest challenges come early in their adult lives when the burdens of acquiring a home and supporting young children strain the family budget,” wrote report author Malcolm Hamilton. “After that, things get easier.”

Among the common assumptions about retirement that Hamilton debunks is the need for 70% of your pre-retirement income to maintain your lifestyle in retirement.

“The traditional 70% target is reasonable for young families who want to sacrifice heavily for 20 years so they can enjoy, after retirement, the high standard of living they can expect near the end of their working lives,” he said.

“It is also reasonable for those who never have children or buy a home. But for most Canadians the 70% target significantly overestimates both the income they need when they retire and the amount they must save to get there.”

In fact, Canadians are actually saving more than the reported 5% household savings rate. This low household savings rate, Hamilton suggests, is due to a general reduction in saving unrelated to retirement, an increase in withdrawals from pension plans and RRSPs, and a reduction in the rate of return on retirement savings.

Hamilton also challenged the worries about declining RRSP contributions and the billions in unused contribution room as an indicator that Canadians aren’t saving for retirement. He suggested that combined with tax-free savings account contributions, that may not be the case.

Politicians have raised concerns that Canadians aren’t saving enough for retirement.

Ontario has passed legislation to create its own provincial pension plan, while the federal government has said it will hold consultations regarding a possible voluntary expansion of the Canada Pension Plan.

However, Hamilton says the Canada and Quebec Pension Plans can only go so far in helping.

“They can establish a lowest common denominator — a replacement target that all Canadians should strive to equal or exceed,” Hamilton wrote.

“Beyond that, we need better targeted programs — programs that are better able to recognize and address our individual needs.”

3 comments on “Never mind, Canadians are saving enough for retirement

  1. So on the same day you print 1 article that says Canadians aren’t saving enough and then another article that says they are? That makes no “sense”


    • PVJ: Yes. It just goes to show that financial analysis depends as much on the assumptions we use as it does the numbers. The first report, from CIBC’s highly reputable Benjamin Tal, highlighted the concern that Canadians won’t have the same income in retirement and that could mean a loss in a pre-retirement person’s standard of living. The second report—by the much respected Malcolm Hamilton—addresses the notion that the assumption that we need the same income in retirement as we do in our pre-retirement years may be false. Both concepts are correct…but the prudent saver may want to address their needs. Will you need to pay the same bills in retirement as you do now? If so you may need to save enough to earn the same type of income as you currently earn. But if you don’t have the same expenses in retirement, then you probably don’t need the same income as you did when you were paying down a mortgage and taking care of kids.


      • One must remember that the financial institutions make money from investing and their tales of caution need to taken with a grain of salt. This is an excellent article.


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