June 19, 2023

Millennial homeowners said to have easier time saving for retirement

Those of us of a certain age worry about our millennial kids and grandkids, chiefly because of the massive costs they face in order to own a home, and the higher interest (and mortgage) rates they are dealing with.

If there’s a silver lining, it may be that those home-owning millennials will have an easier time saving for retirement than their peers who rent — so says an article in the Financial Post.

“Owning a home could make all the difference between millennials having enough money to retire or being forced to work longer than their parents did,” the article explains.

“If millennials — who today are in their late 20s to early 40s — rent throughout their working lives, then they must save a lot more than homeowners in order to retire in their 60s, according to the 2023 Mercer Retirement Readiness Barometer,” the article continues.

“This is a generation where being able to retire is one of the top three challenges when we look at unmet needs,” Mercer Canada’s Jillian Kennedy states in the article.

The article says millennials who rent “will need to save eight times their salary over the course of their career to be able to retire at age 68.” But a millennial homeowner needs to “only” save 5.25 times their salary to be able to retire three years younger, at age 65, the Post reports.

These figures are based on a millennial earning $60,000 annually and saving 10 per cent of their salary to a monthly savings plan, starting at age 25.

OK, so why are the homeowners able to save so much less?

“Homeownership gives retirees flexibility, as retirees who downsize may be able to access a significant amount of money. Renters, conversely, must pay rent every month or face eviction – whether they are 25 years old or 85 years old,” the Post reports, citing a Mercer media release.

As many of us worrying parents and grandparents already know, the big problem millennials face with housing is its cost.

“The composite benchmark price of a home in Canada rose 87.4 per cent over the last decade to February 2023, according to date from the Canadian Real Estate Association,” the article notes. These days, the article continues, “mortgage payments as a percentage of income on a ‘representative’ home stood at 64.6 per cent in the fourth quarter of 2022.”

Housing is said to be “affordable” when it represents one-third of disposable income, the article concludes.

Things sure have changed. Our late dad used to tell us, when we were kids growing up, that a mortgage should cost no more than “two years’ salary,” and that housing costs were affordable as long as they represented 25 per cent of salary. Those rules of thumb probably worked in 1965 but you’d have to make a heck of a lot of money to be able to follow them today!

The article tells us that even those millennials fortunate enough to enter the housing market still need to save a lot of money to be able to retire at 65 — we assume this is absent a pension plan at work. If you are saving on your own for retirement, check out the Saskatchewan Pension Plan. SPP will take your contributions, invest them in a pooled fund at a very low cost, and — when it is gold watch time — will help you turn your invested savings into retirement income, including the option of a lifetime annuity payment.

SPP no longer sets any limits on how much you can contribute to the plan. You can make an annual contribution of any amount up to your available registered retirement savings plan (RRSP)room. And you can transfer any amount into SPP from an existing RRSP.

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.

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