Why there’s no retirement crisis

With no kids and no mortgage, you’ll need less retirement income than you thought.



From the April 2011 issue of the magazine.



Many fund companies and advisers will tell you that you need 60% to 80% of your pre-retirement income to maintain the same standard of living in retirement. But a recent study by human resource consultants Morneau Shepell found that a typical Canadian couple actually needs a lot less. These new findings confirm Statistics Canada research previously commissioned by MoneySense (see “Sweet 65”).

How much less might you need? Morneau Shepell found that a working couple who earned $100,000, owned their own home, and raised two kids, only needs to replace about 43% of their pre-retirement income. If the same couple is childless, they need to replace about 55%.

The study found that you need so much less to live on in retirement because many midlife costs no longer exist. Gone is the cost of raising kids, and mortgage costs are eliminated when the home is paid off. Employment-related costs taper off and, of course, there’s no need to keep saving for retirement. Retirees also pay less income tax.

“This helps explain why there isn’t a retirement crisis,” says Fred Vettese, chief actuary at Morneau Shepell. “Retirees are okay because they generally find, to their pleasant surprise, that they don’t need as much as they thought.”

8 comments on “Why there’s no retirement crisis

  1. People need to take into account that actuaries are not Financial Planners and do not look at the risk side of people's financial plans. The fact of the matter is that as more and more baby boomers retire and need to go into long term care facilities that will most likely be private or semi-private care because as there is less an less government assistance. Average cost is $3500/mo to be conservative. If one spouse is still living at home and one is in a home or needing medical/nursing assistance, the costs can be higher. There will also be less and less people contributing to CPP as the baby boomers retire. Speaking from experience, most of my retired clients are paying slightly less tax in retirement which is taken into account when planning for retirement. The fact of the matter is most spending habits do not disappear on a client's retirement date. The other factor to consider is that technology is keeping us alive a lot longer, so we do not want to risk outliving our money. Last but no least we need to take market fluctuations into account. Better to end up with more than risk not having enough to enjoy the "golden years". All in all a poorly written article. There are too many variables to consider which is why it is important to work closely with an advisor.


    • "most spending habits do not disappear on a client's retirement date"I agree. If at 50, I like to drink good wine, eat out, travel etc.–How will that cost less when I "retire" ?


      • It will not, in fact, I believe travel will cost more in the future.


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  3. As a late 50's couple with kids who are out of the house and a mortgage paid off, we have slowly seen our incomes erode since the 1990's. We are lucky to have had our mortgage paid off when we could in late 1999 and max our RRSP's while we could – however, as we calculate our living costs, our house is getting older and costing us more in maintenance, our property taxes are higher – heck everything now costs more. 3% inflation is a dream we could only hope for – I think it is much higher. You just have to look at the price of groceries, electricity, transportation . . . and then the cost of healthcare as the previous poster mentioned – need I go on.

    We are almost living paycheque to paycheque and have less and less to put aside for retirement now. I am worried that even with what we have saved for retirement over the years, we are not going to be able to retire. Okay, so we may be eligible for tax savings as seniors, but I don't think these breaks are in any way going to make up for the shortfall. So in this regard, I think this article does not accurately reflect the reality of our rising costs.


  4. I think the article is right on. We retired early and found we needed about 50% of our pre-retirement income to maintain the same lifestyle. And we tried to live on that budget a year before retirement to test it out.


  5. I'll admit to being scared as retirement was looming. However I was still really looking forward to it as I disliked my workplace rather a lot. And now, two and a half years on, I 'm loving it and wonder why I was scared.


  6. I disagree with this article also. As a 50 something looking at retiring early – no kids ha! (we now have grandkids), I have new things to spend money on from gifts, medical and dental costs (the majority which used to be paid by an employer), transportation costs would increase as we aren't about to sit around all day twiddling our thumbs and going nowhere – so higher gas, more wear and tear on vehicle, club fees, travel expenses. If I'm being honest, growing old has also will increase my health & beauty budget, trying to keep in shape and look better. My wardrobe bill won't go down as I need special shoes or clothing now. . . the list goes on and on. Since we are not 65, we don't get the same benefit of reduced rates on transit fees, recreation and other reductions that a gold card holder gets. With the number of boomers coming up to age 65, those perks once enjoyed by our parents may not be around for us by then.


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