Canadians Invest Cautiously When Saving for Retirement

While many Canadians are saving for retirement, they’re afraid to take risks, according to a survey from asset management firm BlackRock.

The Global Investor Pulse Survey finds two-thirds of Canadians believe they have the right asset allocation mix to reach their retirement goals. However, they’re holding high levels of cash even though interest rates are low.

While respondents believe they should ideally have about 30% of their wealth in cash and cash products (GICs and high-interest savings accounts), they’re actually holding 60% in cash. Most conservative investors allocate anywhere between 5% and 15% of their portfolio to cash while aggressive investors hold between 0% and 10% in cash. Aggressive investors also hold more stocks than bonds in their portfolio while  conservative investors hold more bonds than stocks.

Canadians say they’re holding a lot of cash because it’s convenient and easily accessible. But 25% hold it to avoid losing money despite the fact that inflation reduces the purchasing power of cash. And one in 10 hold cash because they don’t know there are other options, such as stocks, bonds, or mutual funds.

The survey suggests investors hold a high proportion of cash because they’re skeptical about the stock market. Just 35% say they’re knowledgeable about investing while 51% say “investing is like gambling.”

Canadians understand they need to save in order to have a comfortable retirement and 60% of them have already started to do so. However, there’s a difference between retirement income expectations and how much they’ve saved.

Respondents, on average, expect to have an annual income of $46,900 during retirement. However, among those who’ve begun saving, the average amount they’ve saved is just $70,700. Even with compounding, it’s highly unlikely that amount will grow enough to meet retirement income goals.

Only 40% of Canadians say they’re knowledgeable or somewhat knowledgeable about how much money they’ll need to last through through retirement while one-third say they have no idea at all.

Canadians also aren’t very aware of how to reach their retirement goals. Less than one in 10 are very knowledgeable about the investment choices they should consider to maximize their retirement savings and only 36% have some knowledge. On the other hand, nearly 25% don’t know what their investment options are.

However, not all of the results are negative.

Canadians are taking advantage of tax-sheltered plans: 47% are contributing to RRSPs and 42% making contributions to their TFSAs.

The survey also finds a slight majority of respondents (51%) are more worried about short-term needs than on long-term goals. And more than one-third say they don’t take financial planning seriously.

While the majority of Canadians currently consult with a financial advisor or have used one in the past, few think they need an advisor to help them with their long-term goals. Only 30% would use an advisor if they received an inheritance and only 16% would ask for advice when retiring from work.

But there are alternatives to seeking help from a financial advisor. Younger respondents (those between the ages of 25 and 34) are more likely to turn to online sources for advice. Bank websites and search engines were the most consulted sources for those under the age of 35. The main reason? Convenience.

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