Canucks doing better than we think at retirement saving: report

It’s somewhat rare to see a headline saying Canadians are on track for retirement saving, but that’s the key point of new research from HEC Montreal’s Retirement and Savings Institute.

The study, funded by the Global Risk Institute, was featured in a recent Benefits Canada article.

The positive news – “more than 80 per cent of Canadians aged 25 to 64 are prepared for retirement and the vast majority have a high probability of being prepared,” the magazine notes.

According to the research, which was conducted featuring a large sample of more than 17,000 Canadians, those who are the best prepared are those whose household earnings are below the national median, and “those covered by pension plans,” Benefits Canada notes.

Those who are in the worst shape – somewhat surprisingly – are “upper-middle earners without retirement savings,” the magazine reports, adding that CPP and QPP improvements may benefit that segment of the population down the road.

The authors of the study used what they called a “new stochastic retirement income calculator,” which unlike many calculators, models “the evolution of private savings, accounting for individual and aggregate risk; taxation of savings, including capital gains; employer pensions; a realistic stochastic modelling of work income; the value of housing; and debt dynamics.”

So for those, like us, who got lost at “stochastic,” it seems that this calculation takes into account risk, taxation, future work income, housing prices and levels of debt when calculating what one actually needs to maintain the same standard of living in the life after work.

That calculation showed that on average, participants would have 104.6 per cent of the net income they need, once they are retired, to maintain their pre-retirement living costs.

We can share a personal experience here. When the head of our household decided to get an estimate of what her pension from work would be, she was at first a little dismayed to see that the gross annual pension income – despite 35 years of membership in her workplace plan – was lower than what she was making at work. But when she looked at the net, after-tax income, or take-home pay, it was actually higher. It’s because she’s paying less income tax, no longer making pension contributions, and no longer paying into CPP and EI. That all makes a big difference on the bottom line.

So, the authors of the study conclude, “on average, if (Canadians) retire at the age they intend to, maintain their saving and debt payment strategies and convert all of their financial wealth into income, Canadians have net income in retirement which is higher than their pre-retirement income.”

The reason for the high numbers may be that for those making at or below the median income  “are well covered by the public system even if they have no savings or [registered pension plan] coverage,” the authors of the report state in the Benefits Canada piece. It’s those with income above the median and who also lack workplace pensions – about 15 per cent of Canadians – who need to worry, the article concludes.

If you don’t have a retirement program through work, and don’t really want to take on saving and investing on your own, an excellent option is the Saskatchewan Pension Plan. The plan will invest your contributions at a very low investment cost, thanks to the fact the SPP is not operated on a “for profit” basis. Since its inception in the late 1980s the SPP has grown the savings of its members at an average annual rate of eight per cent. And when the time come for you to convert those savings into a lifetime income, the SPP has flexible annuity options to turn your hard-saved dollars into a lifetime income stream.

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