The number of people worried about retirement income has ticked upward in recent months

By: Bill Zolis

There’s an old saying that defines a financial downturn as your neighbour losing their job, and a financial crisis as you losing yours. I think that reasoning may apply in the world of pensions and retirement savings, as what’s happening in the economy forces more and more people into retirement crisis territory.

According to a major survey by the Healthcare of Ontario Pension Plan (HOOPP), about 75 percent of respondents said they believed there was an emerging retirement crisis in the country as a whole, and 55 percent said they faced a potential crisis themselves and were worried about having enough money for their own retirement.

All of a sudden, a great many more Canadians find themselves worried about their eventual retirement, with insufficient pension savings and, in many cases, no real prospect of being able to afford increased retirement savings any time soon. In fact, 53 percent of people reported that saving for retirement was their leading financial priority, second only to affording day-to-day living, cited by 62 percent.

Only half of the people in the survey – 49 percent – said that they had any kind of employer sponsored pension plan. Nearly 40 percent of people without a pension plan at work felt that they were falling behind financially. Over 70 percent felt that retirement saving was prohibitively expensive, and a similar number felt that rising inflation would make it all but impossible for them to save enough money for retirement.

About 38 percent of employees reported that they had not saved anything for retirement in the last year, and 42 percent said they were living paycheque to paycheque. In the under-35 age group, a third said they had no retirement savings of any kind.

About 13.6 percent of Canadians, or 2.6 million, are self-employed, according to Statistics Canada.

The survey did not look at private retirement planning by people who work with advisors or do their own planning. Statistics Canada reports that in 2019, the last year for which they have published figures, 5.9 million Canadians had registered retirement savings plans (RRSPs). Total contributions that year were $44.3 billion, up about 1.8 percent from the previous year. The median contribution was $3,260.

About two-thirds of the 1,700 people polled for the HOOPP survey said that they would rather work for a lower salary at a job with an employer-sponsored pension plan than at a higher salary at one without. Interestingly, as we have seen in recent surveys of benefits in general, about 50 percent of respondents under the age of 35 also favoured the job with the pension plan.

I found it particularly interesting to see what those under-35 respondents would describe as the best way to save for retirement. In first place, at 19 percent was the defined benefit (DB) pension plan, followed by the defined contribution (DC) plan at 14 percent. (There has been quite a bit of back-and-forth on this question over the years, with DB seen as desirable when inflation and interest rates are low, and DC being popular when they were high.)

Registered retirement savings plans (RRSPs) were cited by 15 percent, tax-free savings accounts (TFSAs) by 12 percent – and even cryptocurrency investments by 6 percent.

Also, 45 percent of respondents reported that one of their major retirement savings plans was in fact their home, and that they planned to rely on selling it and downsizing to finance their eventual retirement. Among under-35s, 47 percent reported owning a home, while 67 percent of those over 35 did.

Among people who do not own homes, 58 percent expressed concern about ever being able to afford to buy. And among home owners, the same percentage said they were worried that market conditions would make it difficult or impossible for them to sell their homes when they retired.

Making predictions about the economy and what’s going to happen next is a little above my pay grade, but it looks like all of the experts agree that where we go next in terms of retirement savings and pensions depends mainly on three inter-connected forces we are hearing a lot about lately,

– Inflation. As of June in Canada, inflation was officially listed as 8.1 percent. (It was 9.1 percent in the United States.) This is the highest it’s been since the 1980s and no one is sure where and when it will top out. Compared to many years of less than 2 percent, it’s a big shock to things like defined benefit pension plans.

– Interest rates. I guess rates are pretty much in lock-step with inflation, since the central banks tend to raise the rates to fight inflation. Currently, the Bank of Canada rate is at 2.5 percent, but it is expected to rise to 3.25 before the end of the year. For mortgages, which were around 2 percent for many years, this means 4-plus percent for variable rate mortgages right now, and higher still when the Bank of Canada goes to 3.25.

– Home prices. It look like home prices are still slightly above where they were a year ago, but everyone seems to agree that a big shake-up is underway. Prices have dropped from their peak – just a few months ago – and the number of sales is down sharply.

Right now, everyone is watching these key indicators, and the future of pension plans and retirement savings all depend on where and when they settle out for the long run.

In the meantime, I’m reminded of another saying in the world of financial planning. By the time you get around to asking yourself when you should start saving for retirement, the saying goes, the answer is almost always, “Quite some time ago.”


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