Why increase in asset values isn't good news for all Canadians' retirement

While median asset values has doubled, challenges remain for a large minority, says policy expert

Why increase in asset values isn't good news for all Canadians' retirement

While the outlook for retirement in Canada appears to be brighter, not everyone will benefit equally.

That was the view Bob Baldwin, chair of the C.D. Howe Institute’s Pension Policy Council, recently shared in an open letter addressed to “Canadians concerned about retirement.”

He noted that between 1999 and 2019, the median value of both assets and net worth for Canadians approaching retirement age has doubled. That’s measured in actual growth — a doubling of value after inflation.

Retirement wealth and the value of primary residences are the primary sources of this growth, he said, with around 70% of all wealth made up of these two categories of assets. He characterized wealth growth across all income and wealth quintiles as quite steady.

This significant rise in wealth should make it simpler for those approaching retirement to maintain their level of life in retirement, he argued, especially when real median family incomes increased by just 1.2 times during that time span.

He pointed to to Statistics Canada's most recent Survey of Financial Security, which indicated many people's retirement incomes will improve.

But he emphasized that a simple comparison of wealth and income growth offers an exaggerated view of retirement earnings improvement that should be expected expect.

Two factors have pushed up the cost of a dollar of safe retirement income from 1999 to 2019, Baldwin said. Over that time span, interest rates have fallen, and life expectancy has risen.

Citing data from Statistics Canada, the amount of wealth needed to provide a dollar of retirement income in 2019 is 1.5 to 1.8 times higher than it was in 1999. Interest rates are expected to rise in the next years, although not to the levels seen in the 1990s. At the same time, the average lifespan will continue to rise, albeit at a slower rate.

The distribution of retirement wealth in the population is highly uneven, adding to the challenges that all persons approaching retirement face.

Participants in occupational pension plans, particularly defined benefit pension plans, are often in a good position to have enough money in retirement. People who do not participate in a company pension plan are not in the same boat.

One-quarter of those aged 45 to 64 have no retirement assets, and those who do have RRSP assets have insufficient wealth accumulated to guarantee a comfortable retirement income.

In addition to retirement assets, the growing value of primary dwellings has been the most significant source of wealth growth.

However, the amount of increased value and the rate of growth have been fairly varied across the country. Furthermore, available data indicates that older Canadians do not use their home equity to produce cash flow.

“The data from the SFS are sufficient to tell us that, in general, people approaching retirement age are in at least as good shape as the currently elderly to enjoy an adequate retirement income,” Baldwin said. “But the data also suggest that there is a significant minority to whom that generalization will not apply.”