Retirement Crisis: How Much Money Do You Need to Retire in Canada?

Preparing for retirement is increasingly difficult in recent years as the cost of living rises beyond most median salaries and wages, as well as the fact that many jobs now do not offer a company-issued retirement savings plan (RSP). This forces many Canadians to plan out an RRSP (registered retirement savings plan) or rely on the Canadian Pension Plan (CPP).

Regardless of some of the resources out there to aid Canadians in planning their financial future, there are too many Canadians trapped in debt or without a solid plan because of a lack of financial understanding. This report will go into detail about the situation aging Canadians face and outline the resources available to help people get back on track for their financial future.

Retirement Statistics in Canada

Saving for retirement, especially in these financially dubious times, is a tremendously important investment that both employers and employees alike tend to overlook. According to a study conducted by the Broadbent Institute, half of Canadians (about 47 per cent) aged 55 to 64 lack an employer-based pensions. The Independent reported on the Canadian pension crisis, describing that “over two thirds of us (68 per cent) don’t have a retirement plan, 30 percent have paltry or no savings, and 62 percent end up retiring earlier than they expected or wanted”.

All of these issues are compounded by the fact that recent reports state that 46 percent of Canadians are about $200 or less away from insolvency, the stage consumers experience before they turn their finances around or declare bankruptcy. Trends like these further lend to the retirement income crisis and senior poverty and put many Canadians in an uncertain financial future.

How Much Does It Cost to Retire in Canada?

So how much does it cost to retire comfortably in Canada, anyway? Sun Life Financial establishes a broad window, citing that you should ideally retire living on between 40 percent to 70 percent of what you have earned before leaving the workforce. Based on their 2016 report, Canadians are living on just over 60 percent of what they earned before leaving the workforce.

In this same report, Sun Life analysts explained: “Working Canadians reported spending an average $3,431 each month on regular expenses such as food, housing, health care, income tax, leisure/travel, entertainment, transportation and savings. By comparison, the average retiree spends just $2,611.” Retired Canadians will not be spending as much in retirement as they had while working.

This makes sense when you consider that working Canadians often spend money on transportation costs to get into work where retirees can scale back on transportation and other work-related costs.

Economic Impacts of a Delayed Retirement

The most immediate impact of Canadians delaying retirement is the aging workforce, which can be an issue that prevents younger people from entering the workforce as industry veterans keep a hold on these positions. In more physically demanding industries, age can hinder work progress and impose health risks on aging workers.

How to Save Money for Retirement in Canada?

To combat this crisis, workplace savings are needed now more than ever. Half of Canadians do not have an employer pension plan largely because workplaces are not offering them. These savings programs are certainly better for employees who need a better grasp on their financial future. They can also benefit the employers as they cultivate a high-quality workplace that attracts more competent and long-term employees and maintain worker productivity up into pre-retirement years with a promise of long-term financial health.

Furthermore, employers can maximize the tax-effectiveness of this compensation (wage increases will be affected by payroll taxes while tax-optimized pension benefits will not).

Retirement Programs and Resources in Canada

Federal programs like the Canadian Pension Plan (CPP) are a start in aiding this crisis, however employees are still struggling to meet a dollar amount required for a comfortable lifestyle in Canadians aged 60 and over. The Trudeau Government offered advancements in this pension plan and is looking to increase the pension from 25 percent of pre-retirement earnings to 33 percent. Contributions to the CPP from employees and companies are expected to rise by one percent from current levels to a maximum of 5.95 percent over the course of 2019 to 2025.

It can be difficult for Canadians to prioritize retirement costs when living costs are already so high and so immediate. However, investing just a small portion of your paycheck towards a monthly savings plan designed for your retirement can make all the difference by the time you reach your 50’s and 60’s. Different people would like to retire at different times, so you should consult a financial advisor to develop a plan that perfectly caters to your retirement plans. It’s all possible if you start planning sooner rather than later.