This week we are looking at how much Canadians need to save to be comfortable in retirement. And the short answer is simply that it is not about how much Canadians need to save, it is how much YOU need to save.

Today's blog post was inspired by this article: Canadians now expect to need $1.7M in order to retire: BMO survey. 

If you want the article straight from the horse's mouth, here is the News Release from BMO: BMO Annual Retirement Study: Canadians Believe They Need $1.7M to Retire - Up 20 Per Cent from 2020

 

I'm going to highlight a few of the interesting points and provide some context.

 

1) $1.7 million is what Canadians think they need to retire. That seems like a pretty large number for one person. Let's assume it is for a couple. At a 3% withdrawal rate that would create $51,000 of income before taxes (I won't get into the after-tax amounts because that is a whole discussion unto itself). Adding the max CPP and OAS for this couple (reasonable if they managed to save $1.7million) would add another $47,000 from these government sources. This would create a combined $97,000 of before tax income, and likely leaving a sizeable estate at the end of their lives. The median Canadian "economic family" earned $106,300 in 2020 so this actually seems like a pretty reasonable situation. If we included people not in an economic family, the Canadian median income drops to $75,500, and for those people not in an economic family - it drops to $37,800. Do keep in mind the bias towards economic families being older and generally at a different life stage. We haven't even discussed pensions, inheritances, or rental property income. The moral of the story is that this $1.7 million doesn't necessarily reflect how much YOU need to save to feel comfortable in retirement (it could be higher, and it could be lower)

 

2) In 2021, this same BMO survey found Canadians think they only needed $1.4million to retire, a 20% jump to get to the 2022 number of $1.7 million. Some of that jump could very well be due to inflation at 8.1% according to the News Release. But something isn't adding up, yet. From my perspective, fear may at least partially explain the remaining 12% of that jump. The headlines regularly remind us about financial issues like inflation, rent, and low wages, not to mention climate change and political conflicts around the world. It is incredibly easy to be scared right now and that fear can seap across our lives. When we are scared we go into survival mode, and potentially think we need more than we needed before to feel safe. But fear doesn't have a 1:1 relationship with how you spend. So again, $1.7million (or $1.4million) doesn't necessarily reflect how much YOU need to save to be comfortable in retirement.

 

3) 60% of Canadians have an RRSP, and 68% of those are contributing. 68% of 60% means that 40.8% of Canadians are saving in an RRSP. This might seem low but we should also keep in mind that anyone older than 71 can't have an RRSP (they must have a RRIF), and for others an RRSP might not be the best savings account at the moment (like anyone earning lower incomes). For the third time, this doesn't necessarily reflect how much YOU need to save to be comfortable in retirement.

 

Articles like this earn clicks because they are interesting insights into the Canadian financial situation. They also earn clicks because they can scare individual Canadians. To counter that, we need to understand that our unique financial situation isn't the same as the average/median Canadian. In my (entirely biased) opinion, one of the best ways to better understand our unique financial position is to work with an advisor. As is noted in the BMO News Release,  "While it is a confusing and intimidating time for many, an advisor can help alleviate some of the financial pressures by helping Canadians create a personalized plan and stress test the strategies through different market conditions and situations to help them stay on track towards their immediate and long-term goals".

 

For my unique financial situation, how much do I need to save to be comfortable in retirement?

That is a conversation I would love to have with you. In the meantime, you can check out this Retirement Savings Calculator from CIBC Personal Banking to start the process.

 

Cheers,

Pete