You need a good plan for retirement


Six million Canadians face a more than 20% drop in living standards after they leave the workforce according to economists from the Canadian Imperial Bank of Commerce (CIBC). A steep decline in savings rates combined with scaled back company pension plans could result in a huge gap for the next generation of retirees. For example, only one-third of the Canadian workforce is covered by a registered pension plan, this is down from 37% in 1992.Current retirees are able to maintain a similar lifestyle as when they were working, drawing from a mix of income sources that include employee pensions, personal savings and government programs… However, for those planning to retire in the next ten years, and young people who are just starting their careers, lifestyle may be sacrificed.

Consumers are saving less and those savings are earning lower rates of return. Savings rates have dropped to 4% today from 15- 20% twenty years ago. For middle-aged workers in their prime saving years, a low interest environment and a volatile stock market have also hit their savings bottom lines.There are different reasons for the decline. To start, lower- to middle-income families simply cannot afford as much as they once did, with every dollar having to stretch further, making saving more difficult.Pension plans have also been pared back in recent years. The CIBC economists report that if trends continue, some 5.8 million workers born between the late 1960s and through the 1980s will see their living standards drop 20% or more in their post-work years.

Statistics Canada reports that Canadians who are 65 in 2012 can expect to spend over 20 years in retirement with male retirement expectancy at 18 years and 21 years for females.

According to a recently released RBC poll, 46% of retired Canadians and just 23% of Canadians who are yet to retire have decided how much they need to be comfortable in retirement. Interestingly, those who have yet to retire have cut their retirement goal fund by over $200,000 to an average of $564,000 in 2012 compared to $778,000 in 2011’s poll.

Ottawa has started to address the issue with the introduction of Pooled Registered Pension Plans, which could be sold by banks and insurers in the coming years. These products act as a kind of personal pension program for individual workers.  Finance Minister Jim Flaherty has also said he is looking for ways to expand the Canada Pension Plan.

As in everything, recognizing the problem leads to the solution. There is time now. Canadians and their financial planners have time to tweak their plans. Policymakers can set new directions for the future to help ensure that retirees enjoy a stress-free time in their later years.

A mortgage can also play a role in any financial plan to consolidate higher interest debt and maximize paying off your mortgage sooner, which will help you to start saving even more.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta).