As longevity increases and workplace pension plans decline, an alarming number of Canadians believe they are better equipped for a long retirement than they actually are—and few know how much money they will need to put aside.
A survey by BlackRock Canada reveals that 62% of non-retired respondents are generally confident that they have planned well for retirement. But only 59% of these people actually have a plan. And fewer than half of Canadians who have saved less than $100,000 for retirement have a plan—even though they are, arguably, the group that needs it most.
Only 15% of future retirees are very knowledgeable about how much they will need to save each year to meet their retirement goals.
The study also shows that 18% of Canadians don’t put any retirement money aside on a monthly basis, and 11% don’t know what they save. The biggest barrier to saving more is living paycheque to paycheque, a decrease in salary and the cost of education, according to BlackRock.
“There tends to be a false sense of security when it comes to planning for retirement,” says Noel Archard, head of BlackRock Canada. “We hope that the money will somehow be there when we need it, but we’re not taking the action required to ensure it is.”
Inaction
Underscoring the inaction of future retirees is the fact that a number of them are not fully engaged in their retirement plans.
Sixty-one percent of respondents with a DC plan or group RRSP take an active role in understanding their workplace retirement plans, according to BlackRock’s findings. Fifty-nine percent make the maximum contribution every month.
But as many as 70% hardly ever, or never, adjust their allocations—although most know that they should do so annually.
As a result of this inaction, almost half of non-retired Canadians have chosen to invest less in the stock market over the past few years. And one-third admit they missed out on the post-2009 market rally.
Workplace pension decline
All of these bleak numbers coincide with the well-documented drop in workplace pension plans. Nearly two in five future retirees have no access to a company plan, including a full quarter of currently employed investors. Overall, barely a third of respondents participate in a DB plan, 18% are in a DC plan, and only 15% are in a group RRSP.
At the same time, Canadians are living longer than ever before. In 1950, a 35-year-old Canadian had a remaining life expectancy of 38.6 years, but in 2010, this jumped to 46.8 years, according to the C.D. Howe Institute.
So how can Canada tackle this problem of inadequate retirement savings against the backdrop of increased longevity?
Employer engagement
One important step employers need to take is to make enrollment in their pension plans mandatory, says Archer.
He also recommends that employers should pay closer attention to whether their workers are making the most of their plans—otherwise, even the best plan would be useless. “The company is not necessarily hyper-focused on the outcome,” Archer explains, adding that right now the onus is often on the employee to get good results.
Financial education
Ironically, achieving good results requires the kind of financial knowledge that is woefully inadequate among many future retirees.
That is why employers—along with the financial industry—need to find ways to educate workers. “You’ve got to be relentless about it,” Archer says.
He adds that the government should also play a role in that process by introducing financial literacy in school curricula early on. “Financial acumen needs to be part of your basic skill set,” he explains. “[Now] for the most part, it’s what you’re going to pick up on your own—and I don’t think that’s a good solution.”
Professional advice
Employees can also empower themselves by hiring a financial advisor, which will also help them be more disciplined, according to BlackRock.
The BlackRock survey polled 1,720 future retirees in May.
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