Are Canadians Saving Enough For Retirement?

June 15, 2007


I don’t find it all that surprising that a recent study found that a majority of Canadians in their early to mid-40s are not saving enough for their retirement. While we have debated many times in the past how much of a nest egg is needed in retirement and vigorously disagreed when the financial industry suggested it to be a million dollars or more, even the lowest estimates run to at least a few hundred thousand dollars plus a fully paid-off home.

According to the StatsCan Wealth of Canadians survey, 27% of Canadian families in the 35 to 44 age group have no pension assets of any kind. The median value of all pension assets for a family unit in the same age group is around $50,000. The picture is the same with RRSPs with the median value at $22,500 and the average value at $49,100 and again suggests that while a minority is saving well, the vast majority are not. The report mirrors the findings of the recent study:

Private pension assets were concentrated in nearly one-third of family units. About 31% of family units with $100,000 or more in private pension savings held 90.3% of the value of these assets.


  1. Jonathan Chevreau’s column in the Financial Post
  2. Blog posts by Canadian Dream, Canadian Financial Stuff and Canadian Financial DIY.

Research on Financial Circumstances of Retirees

May 28, 2007


I would like to express many thanks to reader George for pointing out an excellent research article by Malcolm Hamilton. The report, titled The Financial Circumstances of Elderly Canadians and the Implications for the Design of Canada’s Retirement System, delves into data from StatsCan’s Survey of Household spending and compares income and spending patterns of working-age and retired Canadians.

The report finds that while prime age Canadians do have a larger income, most of their income goes toward taxes, mortgage, savings and providing for young children. In retirement, most of these expenses are greatly reduced and the amount available for consumption (which reflects the standard of living) is not much less than for prime age Canadians. For instance, senior couples, on average, earn slightly more than half that of prime age couples, but the amount available for consumption is only 14% less. In fact, the surprising finding of the report is that seniors are saving and gifting a full 16% of their gross incomes. It is hard to argue that consumption of seniors is reduced out of necessity when they save a significant portion of their incomes at a late stage in life.

The report concludes:

Much of Canada’s retirement system, both public and private, has been built on a faulty assumption — that seniors need to replace 70 per cent of their employment income to maintain their standard of living. Most of the evidence suggests that the required ratio is 30 per cent to 70 per cent depending on an individual’s circumstances, with the average closer to 50 per cent than 70 per cent. The fact that today’s seniors have roughly half of the income of prime age families, but can afford a similar standard of living, supports this conclusion.

The news is also encouraging for those who want to retire early:

Those who save heavily, either because they participate in expensive pension plans (as are common in the public sector) or because they adhere to a strict savings regime, will typically find that they can retire in their 50s and live comfortably on 50 per cent of their employment income. If they keep working until they achieve the conventional 70 per cent target, they may have trouble spending their retirement income, particularly as they push into their late 70s. The recent experience of public sector plans suggests that many Canadians are prepared to retire in their 50s with pensions that are at the low end of the range that has traditionally been considered adequate.

Related: The Truth About Early Retirement from Reader’s Digest.

Spending Patterns in Retirement

May 23, 2007


The StatsCan data referenced in Fidelity’s study, which shows that retiring Canadians would need to replace 75% to 85% of their pre-retirement incomes, is available online. Unfortunately, I couldn’t find support for the assumption that consumption levels remain the same in retirement as in working years.

The StatsCan data breaks down households into three categories based on the age of the reference person: (1) 55 to 64 [we’ll call pre-retirees] (2) 65 to 74 [retirees] and (3) 75 or over [seniors]. The study finds that incomes dropped 34% between pre-retirement and retirement and a further 27% between retirement and senior years. But, expenses also dropped 30% between the first two groups and a further 28% between the last two. The study concludes that:

As households age, income drops steeply because of loss in earnings whereas the drop in personal consumption is more gradual.

It is difficult to say if lowered expenses are a result of reduced income or due to lifestyle changes. However, it is clear that total spending on consumption does not remain the same in retirement. Perhaps the critics are right in claiming that Fidelity has a vested interest in urging Canadians to save more.