Canadians falling short with their retirement planning

Many non-retirees underestimate cost of living when they stop working

Canadians falling short with their retirement planning

Canadians are not saving enough for retirement, with many underestimating the cost of living expenses once they leave the workforce.

The findings were announced as part of the annual Global Investor Study by asset manager Schroders ($604.7 billion AUM), which surveyed 22,000 people from about 30 countries.

It reported than Canadians save an average of 11.9% of their income specifically for retirement, which is less than the Americas average of 13.9% and the global average of 12.2%. Twelve per cent of retirees reported not having enough income to live on comfortably.

Other statistics revealed that Canadian non-retirees expect to spend 42% on their retirement income on basic living expenses, while the reality is they require 59%. However, there was a glimmer of light, with those closest to retirement (aged 55+) predicting that they need an average of 71% of their income to live comfortably while they actually currently need 61%.

Sangita Chawla, senior strategist for Global Defined Contribution at Schroders said she was not surprised by the Canadian results and said there is a degree of “unrealism” until they get a wake-up call later in life.

She said: “Older people start to take more notice of what is in their account. Also, retirement is not far away and so what am I doing? They’re checking their balances and thinking what does that mean? There is a sudden realisation that I haven’t saved enough, I’ve saved too late or not invested appropriately, too cautiously or too aggressively or haven’t taken the right risk at the right time.”

Chawla said her firm was focused on helping Canadians work towards their unique retirement goals and has launched its Schroder MyRetirement Funds, with target date funds that were built upon extensive research of the Canadian market and exclusively designed for Canadians.

She added that advisor can also provide a crucial role in steering clients down the right retirement roadmap.

She said that it is well documented that people need to contribute more, something clients themselves recognize. She added that people need to be realistic about the returns you are likely to achieve.

“You need to take investment risk at the right time. If you are a younger person, 25-45, then you have many years left to retire so you can afford to take more investment risks that invest in growth assets.

“As you get closer to retirement you need to balance the risk reward. Something that people don’t think about is that if you take the foot off the pedal and reduce risk too early, you can actually end up with a greater shortfall in your savings by the time it gets to retirement.”


Related stories:
Stung by rate hike? Advisor offers portfolio solutions
How do you build relationships with HNW clients?