Are Canadians saving enough for retirement? The answer is a resounding no, according to a recent poll by Leger Marketing. Less than one third of Canadians (30 per cent) feel they’ll be able to retire comfortably – if this isn’t a clear sign we’re in the middle of a retirement crisis, I don’t know what is!
Retirement Savings, Oscar Style
With the Oscars on March 2nd (the day before this year’s RRSP deadline), the pollsters at Leger decided to have a little fun. They asked Canadians which Oscar-nominated movie best reflected their retirement plans. Here are the amusing results:
8 per cent – Million Dollar Baby – I’m set for retirement
22 per cent – Bound for Glory – I’m on my way to retiring comfortably
33 per cent – As Good as It Gets – I’m saving as much as I can, but it will not be enough to retire
20 per cent – Gone with the Wind – I’m not saving for retirement
An additional 17 per cent said they weren’t sure what category they’d fall into.
Are We Headed For A Retirement Crisis?
While the movie titles may be amusing, the poll results surely aren’t! This should serve as a retirement wakeup call for Canadians. If you think you can survive on government benefits, think again. Could you get by on $1,000 a month in your golden years? That’s what most Canadians can expect if they don’t save towards retirements. It’s not a pretty picture to say the least!
Making Retirement Savings a Priority
The poll went a step further by breaking down the results by age groups. While Canadians 18-34 are the most likely not to be saving for retirement (31 per cent), only 15 per cent of those over 55 are set for retirement. Meanwhile, two-fifths of those aged 35 to 54 are saving but not enough to retire.
We know retirement savings can be tough, especially when you have other financial priorities to deal with. To make it easier, we’ve decided to focus on the top challenges facing each age group and how to make retirement savings actionable.
Ages 18-34: Focus on Debt First
Younger Canadians often find themselves underemployed and dealing with student debt. They are also struggling to save towards a down payment for their first home.
“Their best asset is time,” says Ernesto Salvi, financial advisor at Edward Jones. “When it comes to considering using the Home Buyers’ Plan, yes I would consider it. Also consider the drawbacks – you’re going to destroy contribution room unlike a TFSA.”
He adds that the Home Buyers’ Plan can be hazardous for those without a dedicated payoff plan. “I’ve seen reports that one third of investors that use the plan never pay it back. My best tip is to pay yourself first – have a PAC (pre-authorized chequing) coming out from your account the day you get paid. When it comes to paying off debt, look at interest rates. Start attacking debt with the highest interest rate first.”
Ages 35-54: Set Your Sights On Higher Returns
Middle-aged Canadians are faced with declining pensions in the private sector. Starting a family and saving towards your children’s education have also become a priority. There just isn’t enough money to contribute towards RRSPs, TFSAs and RESPs at once.
“When it comes to TFSA versus RRSP, if you’re 18-34 and in a low marginal tax bracket, due to the spread of time behind contribution and withdrawal in many cases, the RRSP wins,” says Salvi. “When you start crossing age 50, you have to look at your marginal tax bracket. That’s when each situation needs to be accessed.”
“This is the age group when you children as well. A beautiful program like the RESP was never really promoted by the industry. It’s hard to beat a 20 per cent rate of return. As for RRSP versus RESP, if you’re in a higher marginal tax bracket, you can use your RRSP refund to fund your children’s RESP. You can ask grandparents to donate money for your children’s RESP instead of a gift. My best advice is to get your family involved, especially your grandparents, who can open an RESP and make contributions.”
Ages 55 and Over: Accumulate Your Assets
When you reach age 55, retirement is right around the corner. Your biggest priority should be paying down your mortgage and other debt to reach your golden years debt-free.
“Retirement is not far away anymore,” remarks Salvi. “You don’t have too much time anymore and hopefully you’ve already accumulated assets. What you should do to make retirement relevant is try to envision what your retirement will look like and how much you will be spending.”
You can still save towards your retirement and pay down your mortgage, according to Salvi. “While it is true mortgage rates are low, I find an effective strategy is to use your refund from your RRSP contributions against your mortgage,” says Salvi. “For example, if you down your mortgage at a rate of three per cent, in order to get the same rate of return from your RRSP you’d need four to five per cent after-tax. This way you can still kill two birds with one stones – paying down debt faster and taking care of your retirement.”