Only one in three Canadians expecting to retire in 2030 are saving enough for a comfortable retirement, says a study sponsored by the Canadian Institute of Actuaries.
The study—Planning For Retirement: Are Canadians Saving Enough?—developed a total of 72 household profiles to assess whether those born in the early to mid-1960s are putting enough savings away for retirement. It focused on two different income levels: households earning the average industrial wage($40,000 in 2005)and those earning twice that amount.
“The message for most Canadians in their early to mid-40s is they will need to save more if they expect to enjoy an independent retirement,” says the firm’s president, Normand Gendron.
Those households saving enough are doing so using a combination of company-sponsored pension plans, RRSPs, home equity, and personal savings to supplement the modest base income they will get from the Canada/Quebec Pension Plan and Old Age Security.
However, those relying on just one type of savings vehicle are consistently identified among those falling short and will either have to increase their savings significantly or continue to work past age 65.
“Governments need to provide Canadians with more education about the role that different savings vehicles can play in generating retirement income, and provide tools and incentives that encourage more households to save,” he says.
The study also examined the effect of home ownership in closing the gap, as well as what would happen if a person retired at a later age. In addition, the research study team developed targets to show what savings levels would be needed to generate sufficient income to enable households to do more than just cover basic necessities in retirement.
Its findings clearly point to the value of home equity as a retirement savings tool. It also suggests, given the high percentage of Canadians who may need some portion of their home’s equity to provide adequate retirement income, governments should consider making interest paid on the mortgage on a principal residence tax deductible.
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