The retirement crisis: What young Canadians need to know about planning for the future
Retirement can seem impossible for many people. Earlier this year, BMO’s annual retirement study found that Canadians believe they need $1.7 million to retire, a 20 per cent increase from 2020. Yet, only 44 per cent of Canadians are confident they will have enough to retire, marking a 10 per cent decrease from 2020.
These issues are amplified for younger generations. According to Statistics Canada, the median income in the 25-34 age range was $45,800 for 2021. With an average living wage of $19.72 per hour in Ontario, this only leaves a few thousand dollars per year to put into savings after basic living expenses.
Another concern is the rising cost of living. A 2022 survey published by the Angus Reid Institute found that more than half of Canadians can’t keep up with the increasing cost of living, with seven in 10 reporting feeling stressed about finances.
As living expenses continue to rise and wages remain inadequate, retirement can feel out of reach for many people. Read ahead to learn about solutions to the growing retirement problem, including support resources and financial management strategies.
Government safety nets
Sarah Bennett, a financial planner from Kingston, Ont., wants to assure Canadians that despite seeming hopeless, there are government safety nets in place as a worst-case scenario. She said young people, in particular, seem to think they will work until they die, but this won’t be the case as long as social assistance programs keep up with inflation.
The Canada Pension Plan (CPP) is one such government safety net. The CPP pension is a monthly, taxable benefit that replaces 25 per cent of a worker’s average salary earned throughout their working life, up to $1,254 per month. The CPP pension is set to steadily rise to 33 per cent of a pensioner’s average salary, a transition which started in 2019.
Beyond the CPP, there is the Guaranteed Income Supplement (GIS). GIS is a pension based on residency, not working life. A long-time Canadian resident may receive up to $667 per month. Pensioners with a low income may also receive the GIS, a guaranteed payment of up to $996 per month if they are single or $600 if they have a spouse.
Between these three pensions, a pensioner could earn close to $26,000 per year in either tax-free or low-taxed income. Though this is well below the living wage for Ontario, Bennett said it allows many pensioners to afford basic living expenses. Additionally, Bennett explained that government pensions will increase over time with inflation.
Eliminate debt before retirement
According to Bennett, it’s wise to eliminate debt before retirement. She explained that the debt is going nowhere and will only become more expensive as time goes on due to interest rates. She added that since interest rates are often variable, predicting how much money a would-be retiree needs to pay off debt after they stop working is difficult.
With fixed expenses and variable interest rates, Bennett said the best strategy is to pay off debts in full before retirement, even if that means putting less money into savings.
You may need to work longer, but not forever
Given the uncertainty of the future, Canadians may need to work past the traditional retirement age. Bennett said that although this is a frustrating prospect for many people, the possibility of working past retirement age is better than in previous generations. New work arrangements, such as remote or hybrid jobs and temporary work assignments, can allow workers to take on a lighter workload while still enjoying a semi-retirement.
Though retirement may feel uncertain for many Canadians, Bennett said it is still a realistic possibility for most Canadians, both now and in the future. The important thing to remember is to plan accordingly, minimize your debt and use available support resources. That way, you can enjoy your golden years –– just like you deserve.