Retirement a distant dream for many Canadians

[Dion]

The third annual survey by the CPA also found 40 per cent of Canadians expect to postpone their retirement because they aren’t saving enough.

Sixty-eight per cent of the 2,070 employees surveyed said they have saved less than a quarter of the money they expect to need to retire.

“This is particularly troubling when you realize even the older age groups are not saving for their retirement,” says Dianne Winsor, chair of the CPA.

“For example, more than 40 per cent of Canadian employees aged 55 to 65 are still less than a quarter of the way to their retirement savings goal.”

The CPA survey found half of employees were putting aside five per cent or less of their net pay. Financial planners generally recommend putting aside 10 per cent of each paycheque.

Thirty-two per cent said the most significant thing they can do to improve their financial situation is spend less.

For 22 per cent, paying off credit card debt was the top priority. According to the most recent figures from TransUnion, Canadians are carrying an average non-mortgage debt of $25,60

http://www.ottawacitizen.com/busines...088/story.html

[Young-Sneezy]

misery loves company at 1:30 am, hey?

some of those stats seem a bit.. awkward...

40 percent, of employees, aged 55 to 65...are a quarter of the way to their retirement goal?

i dont think that Canadian debt is a joke, or a non issue...i just think sometimes people can reach for certain stats to gain peoples attention to an issue.

[Shin Pad]

Originally Posted by Young-Sneezy

40 percent, of employees, aged 55 to 65...are a quarter of the way to their retirement goal?

This doesn't surprise me at all. Just look at houses and the toys a lot of people have, who aren't raking in the dough in their jobs. When I lived in Chestermere, I had a neighbour, who once showed me his pay check, and I was absolutely shocked that he could own any sort of a home, let alone a 2500 sf house in Chestermere. Not only that, he had a boat, a quad, and a new truck. I asked him if he won a lottery or something. Basically, he just had his credit maxed out. The guy was in his mid forties, so I can imagine he's going to be nowhere near being able to retire at 65.

Unfortunately, I think this sort of thing is far too common these days.

[Dion]

Originally Posted by Young-Sneezy

misery loves company at 1:30 am, hey?

some of those stats seem a bit.. awkward...

40 percent, of employees, aged 55 to 65...are a quarter of the way to their retirement goal?

i dont think that Canadian debt is a joke, or a non issue...i just think sometimes people can reach for certain stats to gain peoples attention to an issue.

No misery for me. I started saving for retirement at age 19. Combine that with good investing and financial advisors things are looking pretty good for me.

[Dion]

Originally Posted by Shin Pad

This doesn't surprise me at all. Just look at houses and the toys a lot of people have, who aren't raking in the dough in their jobs. When I lived in Chestermere, I had a neighbour, who once showed me his pay check, and I was absolutely shocked that he could own any sort of a home, let alone a 2500 sf house in Chestermere. Not only that, he had a boat, a quad, and a new truck. I asked him if he won a lottery or something. Basically, he just had his credit maxed out. The guy was in his mid forties, so I can imagine he's going to be nowhere near being able to retire at 65.

Unfortunately, I think this sort of thing is far too common these days.

I think it's far too common also. With credit being so easily available it doesn't surprise me that many are living beyond thier means. I can't understand how some can live that way.

[Young-Sneezy]

I agree that Canadian debt is outrageous..i think its a combination of people taking for granted both how difficult it is to pay debt back, and a lack of investment diversification i.e., losing their shirts at a moments notice of economic hardship. look at the fact that new graduates struggle to get jobs, largely in part to fluctuating economic climate essentially causing baby boomers to continue working now that investment times are tricky

i just think that stat picks apart a very small segment to grab readers attention...like you said, the mid 40's with a boat and a truck and toys are likely the people who make up a SOLID portion of the people in serious debt in canada. it is effective though.


thats why i keep all of my money in a big sack with a dollar sign on it, under mah bed.

[Cowperson]

Originally Posted by Shin Pad

This doesn't surprise me at all. Just look at houses and the toys a lot of people have, who aren't raking in the dough in their jobs. When I lived in Chestermere, I had a neighbour, who once showed me his pay check, and I was absolutely shocked that he could own any sort of a home, let alone a 2500 sf house in Chestermere. Not only that, he had a boat, a quad, and a new truck. I asked him if he won a lottery or something. Basically, he just had his credit maxed out. The guy was in his mid forties, so I can imagine he's going to be nowhere near being able to retire at 65.

Unfortunately, I think this sort of thing is far too common these days.

Maybe he knows he's going to be on the receiving end of the greatest inter-generational wealth transfer in history OR he's planning to downsize at some point (and hopes there's a younger version of himself ready to buy when the time is right).

I know one guy in his 40's who hasn't saved a dime in his life but openly declares his retirement will be funded by "The Bank Of Mom." His widowed mother is a very sharp millionairess and he's an only child.

Sometimes I wonder if this is all overblown but, as someone with no inheritance in sight and only myself to provide self-funded retirement, I'm amply motivated to believe it.

The circumstances for everyone will be different but many of these studies fail to account for anticipated wealth transfer between generations or the fact this gentleman in Chestemere, as one example, IS actually saving . . . . . provided he can sell that house for a pretty penny in the future.

Cowperson

[Rathji]

I am gleefully awaiting the global economic collapse where my skills in bow hunting and non-digital porn distribution will buy me a comfortable living.

[bizaro86]

Originally Posted by Young-Sneezy

thats why i keep all of my money in a big sack with a dollar sign on it, under mah bed.

Have you considered converting it into gold coins, filling a vault with them, and buying a diving board?

[shermanator]

Every article I read about retirement scares the crap out of me. As someone who is 28, and just beginning his savings plan, that's probably not a bad thing.

[bizaro86]

Originally Posted by fotze

When trying to figure out how much you need to save, it is always tricky because the models always allow you to enter a rate of return on your investments, like its an afterthought. I'll just slap 7% in here, yet that is the most important number in the whole thing. 3% vs 10% is massive.

and cowperson, what do you mean massive wealth transfer? I am certainly not going to count on inheritance.

They should really show you the results with a range of returns. Sure, maybe the average is 7% (or whatever) but if mine happens to be 5%, just how screwed will I be? People would save more in that case, I think.

It's the same as inheritances, really. Sure, on average there will be a large wealth transfer, but the average doesn't help you any. It only matters to you if there is wealth being transferred to you personally.

[Ozy_Flame]

While an inheritance is a nice thing and being a trust-fund baby sure sounds nice, I think the real problem lies in education. Kids are NOT being forced to take money management classes, nor are they taught to respect the almighty dollar. Kids today play with Xboxes, iPhones, crazy light-flashing toys that connect to the Internet, and the parents don't realize that these things add up. They kind of beleive that it's good practice for their kids in the future.

Technology may change, but the buck sure doesn't. A dollar saved is a dollar earned. I don't think enough kids going into their teenage and young adults years have been taught to think like that.

[IliketoPuck]

What he means by the generational wealth transfer is that the Baby Boomers will soon (some already have) start to leave the workforce and begin to collect on their Canadian pension plans. The problem is that there is way more people that will begin collecting, than people that will be paying into the program, creating a transfer of wealth from the younger generation, to the older. The end result will be that social programs will become drained as the amount of $$ going into them will be insufficient compared to the amount that has been promised to retirees by the government.

So essentially the government has promised a whole lot of money due to its social programs, but it is possible that by the time I am ready to retire the piggy bank willl be empty or my benefits will be significantly less than those of the retirees of the previous generations.

[Ozy_Flame]

Originally Posted by IliketoPuck

What he means by the generational wealth transfer is that the Baby Boomers will soon (some already have) start to leave the workforce and begin to collect on their Canadian pension plans. The problem is that there is way more people that will begin collecting, than people that will be paying into the program, creating a transfer of wealth from the younger generation, to the older. The end result will be that social programs will become drained as the amount of $$ going into them will be insufficient compared to the amount that has been promised to retirees by the government.

So essentially the government has promised a whole lot of money due to its social programs, but it is possible that by the time I am ready to retire the piggy bank willl be empty or my benefits will be significantly less than those of the retirees of the previous generations.

Then young guys like us have two choices - either save like a madman, or lobby for legal euthanasia and avoid retirement altogether

[jtfrogger]

I think this issue is overblown.

Anecdotal evidence is worth less than you pay for it, but I have never heard of someone in Canada at the age of 65 not being able to retire other than wanting to pay for luxuries. (My mother at age 76 is still working part time because she enjoys what she does and also enjoys what having the extra money lets her do.)

I like this article from MoneySense. They break down the numbers into three categories of retirement: scraping by, middle class, and upper class retirement.

To just scrape by, you can get by without saving a penny. You have no money for any luxuries, but you have enough money for basics like food and rent (they assume you don't even own your home). They did mention that this fluctuates in some cities, so it may not apply perfectly in Calgary.

If you own your own home and/or have even as little as $250,000 in savings, life becomes a lot more comfortable.

Now, personally, we plan on saving more to allow for earlier retirement and/or higher living than average. But there should be no fear of being forced to work to avoid poverty as a senior.

[J pold]

Flipin’ baby-boomers! I laugh when I hear people say that it is my generation (Gen Y) that is the most self entitled in history. Make no mistake the baby-boomers are by far the most entitled generation of all. They lived an overleveraged lifestyle in the prime of their earning years which lead to massive bubbles that nearly broke the financial system, which in turn has resulted in a bleak economic outlook for the people of my generation when we reach our prime earning years, that is if you are able to find a job at all. Now it appears a fair share of them didn’t even have the foresight to save for retirement and are now forced to work longer into their lives, which results in a depressed job markets for new graduates. When they are finally booted out the door they probably won’t have enough money saved and will expect the younger generation, which they already have greatly disadvantaged, to prop them up until the die.

[IliketoPuck]

Three cheers for the Baby Boomers.

Hip Hip....Fail.

[IliketoPuck]

Originally Posted by Ozy_Flame

Then young guys like us have two choices - either save like a madman, or lobby for legal euthanasia and avoid retirement altogether

The way I see it the world is ending in 2012 anyways. Might as well live my last year like a boss.

[Slava]

Originally Posted by fotze

When trying to figure out how much you need to save, it is always tricky because the models always allow you to enter a rate of return on your investments, like its an afterthought. I'll just slap 7% in here, yet that is the most important number in the whole thing. 3% vs 10% is massive.

and cowperson, what do you mean massive wealth transfer? I am certainly not going to count on inheritance.

The wealth transfer he refers to is the baby boomers passing their wealth to the next generation, which is considered to be the largest wealth transfer between generations in history. It brought up constantly at financial advisory meetings of one sort or another. For a few reasons I think that its largely bunk....but thats another story.

The biggest failing of people planning for retirement though is horrible planning. Most people have this idea that they are going to downsize, and spend less money than they currently live on - that figure is approximately 75% of their income. Mysteriously though they plan to reduce their spending to this point while having more free time (no longer working for 40 or more hours a week), and no schedules to hold them back from their likely poor spending habits! The reality is that a lot of people spend more than they are actually earning when they initially retire. They travel, they buy stuff for the grandkids and kids, they do things in terms of hobbies more than they were able to before. This comes to an average of about 135% of their pre-retirement income. In other words people are planning for a retirement where they'll have much less budgeted than what they will actually spend in their retirement!

(Saving to be able to spend 135% of your pre-retirement income would be a nightmare btw, but the numbers are what they are; and I'm looking at the first 10-15 years where most retirees are active and spending the most money)

Your rates of return are great and maybe you will hit 10% when you base it on 7%, but if the target you aim for in the first place is off by that much its basically a moot point. You won't have enough money.

Lastly on rates of return I should make a comment. The financial service industry has done a bad job for people here. While most financial plans are based on this average value of 7% per year before retirement and then 5% during retirement there are way better methods to approximate things. We would never build a bridge based on the "average load". As soon as we had to have a large truck drive across we would be doomed! So why in the world would basing retirement (and someones entire financial future, including how they will eat and clothe themselves) make any sense at all? It doesn't. Advisors have the tools to do better, and some do. Part of the problem is that people don't actually want to hear it. Another problem is that anyone can figure out that if you start with $100 today and add $100 per month compounding for 25 years at 7% how much money you have to retire on; its lazy planning and the results are predictable.

/rant

[bizaro86]

Originally Posted by Slava

The wealth transfer he refers to is the baby boomers passing their wealth to the next generation, which is considered to be the largest wealth transfer between generations in history. It brought up constantly at financial advisory meetings of one sort or another. For a few reasons I think that its largely bunk....but thats another story.

Nope. The wealth transfer is TO the baby boomers from their parents. (The so-called Greatest Generation). The parents of the baby boomers lived through the depression and WWII, and they were savers. So much so that when they begin to die there will be a huge transfer of wealth to their children, the baby boomers.

The oldest baby boomers are just starting to reach retirement age, and their parents are in their 70s/80s. When that generation dies, they'll pass on money, on average.

The way things are going now, on average I wouldn't be surprised if the baby boomers pass on a house with a huge mortgage and nothing else on average.

Those of us in younger generations will get the privilege of paying for their medical care and pensions when their older as well. Neither of which they put in enough to pay for during their prime working years.