While the majority of Canadians are saving for their retirement, most don’t know how much they need to save, according to the Canadian Financial Capability Survey.
With many companies moving away from offering traditional pension plans and instead offering self-directed plans, most Canadians are now responsible for their own retirement savings.
Although 71% of Canadians say they’re confident they’ll have the income they need in retirement, just 66% are saving.
The older Canadians are, the more likely they’re saving. Seventy-nine percent of non-retirees between the ages of 65 and 69 are saving compared to just 31% of those aged 18 to 24 years and 61% of those aged 25 to 34 years. Of those aged 35 to 64, between 76% and 78% are preparing for retirement.
The survey also finds respondents with higher levels of education are more likely to be saving for retirement. Seventy-eight percent of those with a university education are saving versus 57% of those with a high school diploma or less and just 44% with some college, trade or university education.
When asked how much they need to save for retirement, 60% of Canadians had no idea. Among various population groups (such as low-income, male, female, newcomers), the majority didn’t know the answer. The findings show there needs to be additional education efforts to target the entire population.
Retirement income sources
Canadians believe their main source of retirement income will be workplace pensions (31%), personal retirement savings (30%), and government pension benefits (23%). What’s troubling is 5% expect their main source of income will come from working during retirement. Although this is a small percentage of the population, it suggests these Canadians’ savings and pensions aren’t adequate enough and they’ll have to stay in the labour force.
Forty-three percent of low-income earners expect to rely more on government pension benefits than their own savings and just 31% of this same group are saving for retirement. However, this isn’t as concerning as low-income earners are often able to maintain the same standard of living in retirement because they’ll probably get higher Old Age Security payments and qualify for the Guaranteed Income Supplement.
While the survey doesn’t specify what types of investments they’re using to fund their retirement, it’s likely they’re using GICs and high-interest savings accounts because Canadians like to hold cash.
As education levels increase, the more likely Canadians expect workplace pensions or their personal savings will be their main source of income in retirement. Thirty-five percent of those with a high school diploma or less believe government pensions will be their main source of income while just 14% of those with a university education believe that to be the case.
Children’s education savings
The majority of Canadians with one or more kids under the age of 18 are saving for their children’s education, with 72% using a registered education savings plan (RESP).
Parents with a higher level of education are more likely to save for their children’s education. Eighty-four percent of parents with a university education are saving for their children’s education compared to 55% of those with a high school diploma or less.
Certain population groups are doing better than others. For example, newcomers are the group most likely to save for their children’s education because they have high educational aspirations for their kids.
However, low-income earners seem to struggle to save for their children’s education.
The survey suggests the reason could be that they’re not aware of the Canada Education Savings Grant, which gives parents 20% on every dollar of the first $2,500 they save in an RESP each year up to a maximum lifetime grant of $7,200 per child. The information about the grant usually goes hand in hand with RESP-related information.
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