Cost of living surge has derailed retirement plans for millions of Canadians

Sun Life's biannual report on workplace savings plans highlights importance of expecting the unexpected

Cost of living surge has derailed retirement plans for millions of Canadians
Steve Randall

For most people, retirement means living on a fixed income, but the surge in the cost of living has highlighted how even the most prudent financial planning can fall short.

The sudden surge in inflation and interest rates, coupled with the geopolitics that sparked this, and the uncertainty of recession and other economic matters, could not have been foreseen, but for millions of Canadians it’s also hard to see what’s to come.

One third of retirees participating in a new survey from Sun Life say that the cost of living is higher than they expected.

Sun Life’s biannual Designed for Savings report looks at the state of Canada’s workplace savings plans and acknowledges the important role that participation by employees plays in maximizing their retirement security, while its Decumulation Playbook aims to help employers support their employees in the often-confusing transition from retirement saving to spending.

Running out of money is frequently cited as a top concern of retirees and pre-retirees and guessing life expectancy is hard. But the Playbook gives some averages that can help with a ballpark figure at least. For example, a 65-year-old man has a 50% chance of living to 83 and a 25% chance of making it to 95 and a 65-year-old woman has a 50% chance of living to 92 and a 25% chance of reaching 97.

"For many Canadians, 'traditional' ideas of retirement no longer apply. Retirement isn't only about finances, Canadians need support navigating this stage of life," said Eric Monteiro, Senior Vice-President, Group Retirement Services, Sun Life. "Alongside employers, we play a key role helping Canadians rethink retirement income. Support, advice, and a strategy are key to living the retirement you imagined."

The survey found that 80% of those with a financial plan feel more confident in retirement and 85% of over 40s are not sure about how to withdraw from their retirement savings.

Retirement age has been creeping up and by the end of 2022 the average was 62.9 years (up from 62.7 in 2021) while the median retirement age was 63.1 (from 62.8).

The largest share of overall plan assets were target date (37%) followed by Canadian equity (12%) and company stock (10%).

Plan participation

The firm’s research found that while 57% of the Capital Accumulation Plans included in the analysis were voluntary, 73% of qualified members had enrolled. Participation was typically higher in firms with larger numbers of eligible employees.

Larger firms were also more likely to be offering all three types of plans with 29% of those with 1,000 or more plan members offering a DCPP, group RRSP and group TFSA. The same is true of 28% of sponsors with between 500 and 999 members.

Among Sun Life Group Plan participants, the average sponsor contribution was $5,230 based on figures as of December 2022 and the average member contribution was $5,530.