The Magic Number for Retirement Savings
With less job security, a higher cost of living, and fewer employers offering Defined Benefit retirement plans than ever, it is little surprise that people are less confident about their retirement savings. While Canadians are afforded a modest pension through the Canada Pension Plan (CPP), the amount is often far from enough to cover living expenses upon retirement. Especially when factoring in rising health care costs that become increasingly burdensome with age. So with all of life’s unexpected twists and turns, what is the magic number for retirement savings?
The correct answer is that there is no exact number. While most people believe that a 60% to 70% replacement ratio for annual income will suffice, there are a lot of other variables at play including lifestyle, health and debt/equity. One of the main issues with saving for retirement is that it is typically not prioritized as much as it should be, especially when there are more pressing issues, like mortgage payments, and groceries, and a new flat screen TV. According to research by the Canadian Payroll Association (CPA), 47% of working Canadians and 55% of millennials in their 30’s reported that it would be difficult to meet their financial obligations if their pay check was delayed by even a single week. One might hope that it gets better with age, but the same study revealed that 47% of those over 50 said that they are less than 25% of the way to their retirement savings goals, with many anticipating that they will need to delay their retirement.
So while this may sound like doom and gloom, it isn’t all bad. There are some phenomenal savings tools out there which can offer value and flexibility that traditional Defined Benefit plans cannot. The most popular one is the Group RRSP. A Group RRSP is a plan designed to encourage your employees to start saving for retirement at work by contributing through payroll deductions. Employers will often proportionately match employee contributions as well to sweeten the pot. This allows employers to assist their employees with their retirement goals through a financially sound investment in their future. For employers who already provide a retirement plan, it may be as simple as ramping up the conversation around your employees’ retirement goals to get people excited about their approach to savings and improve financial literacy. For those without a plan, we would be happy to assist you with more information by contacting your Silverberg Advisor today.