Millennial workers who rent for their entire careers must save 50 per cent more than homeowners in order to have a sufficient monthly income in retirement, according to a new report by Mercer Canada.
The report, which analyzed findings from Mercer’s database, found millennials who rent need to save eight-times their annual salaries to retire at age 68, while millennials who own homes only need to save 5.25-times their annual salaries in order to retire at age 65.
Read: How is rising inflation impacting retirement savings?
Employer-sponsored retirement plans can help millennial workers achieve retirement readiness, noted the report, which defined retirement readiness as a 75 per cent probability of not running out of money before death if an appropriate level of income — including Canada Pension Plan/Quebec Pension Plan and old-age security benefits — is maintained throughout retirement. According to the report, this level of retirement income is 66 per cent of pre-retirement income for baby boomers and 69 per cent for millennials.
In addition, by delaying the commencement of CPP/QPP and OAS to age 70, the report said workers decrease their chances of running out of money in retirement by roughly 15 per cent.
“In an environment where the cost of living continues to rise and housing affordability continues to decline, many millennials may become resigned to renting, having been permanently locked out of the market,” said the report. “Compounding these retirement challenges is the issue of debt, as the rising cost of living causes consumer debt to mount, preventing many working people from saving for either a down payment or retirement.”
Read: Helping employees understand the benefits of delaying CPP/QPP