The average person says they want to retire by the age of 63.2 – but the reality is many of us are not financially prepared. A survey by the Conference Board of Canada found 60 per cent said they will be unable to retire comfortably with the financial plan they currently have. A majority of Canadians closest to retirement, aged 55-64, admit they haven’t put enough money aside to resign from the workforce completely. Experts say the lack of financial literacy is contributing to Canadians being unprepared for retirement.
As November is Financial Literacy Month – a whole 30 days dedicated to helping Canadians learn more about their money -it makes sense to focus on the issue of impending retirement, which continues to be a major concern for many who feel they aren’t saving enough for their golden years.
A Gap in Saving Skills
The study found many respondents feel they don’t have the knowledge to make the right financial decisions. Says Survey Lead Research Director Judith MacBride-King, “About half of the survey respondents rated themselves as average, and one in five note that their skills are below average or poor. This is a particular concern when it comes to women, younger respondents, and those with lower household incomes – all of whom rated their financial literacy skills particularly low.”
The general rule is always put 10 per cent of your after tax income towards your retirement saving. But the longer you wait to start saving for retirement they more aggressive you have to be. For someone who starts saving after 40, they would have to put in a lot more than 10 per cent to build a decent nest egg to retire.
Are You Saving in the Wrong Place?
The survey found more Canadians say they are putting money aside for retirement, which is great news. But many are not putting enough – often because they’re saving for their children’s education instead. The most important thing to remember is your child’s RESP comes second to your RRSP. A child has many financial options when they arrive at university or college, grants, scholarships loans etc. But during retirement a person can only rely on the money they have saved or exists in a pension plan.
Woman are Most at Risk
Many women may find they’re spending part of their retirement alone – and this reality should factor into their planning. Despite this, an overwhelming number of women in North America have no retirement plan. In The Smart Woman’s Guide to Planning for Retirement, author Mary Hunt says almost 92 per cent of women assume they will be taken care of by their husbands, work pensions or government benefits after they turn 65. She says the reality is 66 per cent of women living in retirement are single and women should be planning for that predictable situation Sadly more than 50 per cent of marriages end in divorce, women live longer than men and are usually younger than their spouses.
Young people on track
“While these findings are disturbing and suggest that much more needs to be done to ensure Canadians are ‘retirement ready’, there is some good news in the survey”, according to MacBride-King,. “A good number of younger Canadians are beginning to consider their future post paid-work. About 34 per cent indicated that planning for retirement is a priority for them – and 24 per cent noted that they have formulated a plan to prepare for their eventual retirement.”
Will You Have to Delay Retirement?
Concern over poor financial planning is leading many to delay leaving the workforce: 20 per cent of respondents in the Conference Board survey said they were waiting longer than expected to retire. As well, a full 45.6 per cent of respondents say they plan to continue to work part-time or on a contract basis after their official retirement, and the percentage increases with age. About 51 per cent of those aged 45-64, and 60 per cent of those aged 65+ say they will continue working past their official retirement date, the survey revealed.
The Need for Financial Literacy
Understanding personal and financial matters plays an important role in retirement planning, says the Conference Board. Respondents who report excellent financial literacy skills are anywhere from four to seven times more likely to be confident that they will be able to retire when they want, understand the income they will receive from public pension plans, and know how much they need to save. In November there is a push across Canada to help people understand more about your money, but learning about your money can happen at any time.
What You Can Do
Need to turn around your retirement plan? Consolidated Credit has put together the following primer on what Canadians need to know to prepare for retirement:
- Set your goals – What kind of a retirement do you envision? Lots of financial advice articles talk about seven-figure savings requirements, but it entirely depends on you. Will you travel? Will you downsize? Will you buy luxury items? Try this retirement lifestyle quiz from the Investor Education Fund to see what your future has in store.
- What’s it going to take? – Once you have your goals in mind, try the Canadian Government’s Retirement Income Calculator. Enter your financial information and see if you will hit your target or if you’ll fall short. Knowing where you stand will allow you to make the necessary adjustments.
- Start early – The sooner you start saving for retirement, the better. Adding small amounts to an RRSP in your 20’s gives your money 40 years of growth. Starting later would require much bigger investments to get the same results.
- Know your options – There is a range of ways you can fund your retirement, including public and private funds. The Financial Consumer Agency of Canada (FCAC) has put together a list of retirement income sources to help you put some of your eggs in different baskets.
- Eliminate debt – Everyone strives to be debt-free in retirement, but some studies show more than half of Canadians carry some form of debt into retirement. Attack your debt while still earning an income, or, seek help from a non-profit credit counselling service if your debt is unmanageable.
Happy Financial Literacy Month!