How much do you need to retire? The number is growing, Canadians say in polls

“Retirement Savings Growing: Canadians Reveal How Much They Need to Retire Comfortably”

After a year of decades of inflation behind them and the rumblings of a possible recession ahead, retirement feels increasingly out of reach for most Canadians, according to a new survey by BMO.

Canadians now believe they will need $1.7 million to retire, up 20 percent from 2020’s $1.4 million, the survey found. Yet less than half of respondents (44 percent) said they were “confident” about having enough money for retirement — a 10 percentage point decrease from 2020.

BMO’s report, released Tuesday, is based on an online survey conducted by Pollara Strategic Insights in November. It found that 74 percent of the 1,500 Canadians surveyed are concerned about how current economic conditions, such as inflation, will affect their financial situation.

Nearly 60 percent said they believe these factors will affect their confidence in achieving their retirement goals.

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Caroline Dabu, BMO’s head of wealth marketing and advisory services, says the raising bar for retirement and falling confidence in achieving those goals reflects the toll the past year and a half has taken on Canadians’ finances and their fears.

“It’s really a reflection of Canadians saying, ‘I feel the crisis,’” she says.

Personal finance expert Rubina Ahmed-Haq tells Global News that Canadians tend to sacrifice savings goals when the rising cost of living eats away at household income.

“When more money goes toward paying your mortgage, groceries, and everyday necessities, there’s less money left over for long-term planning,” she says. “All of that falls by the wayside when everything else costs you so much more.”

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Putting retirement savings and investment plans on hold for a year can be “significant” to your overall development, especially when you’re young, according to Ahmed-Haq. Harnessing compound interest on your contributions when you’re young can be crucial to reaching retirement goals in 25 to 30 years, she says.

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Ahmed-Haq notes that the longer your investment horizon, for better or for worse, your retirement savings will be one year less impacted.

“A year isn’t going to make or break anyone,” she says.

Although a majority of survey respondents said current economic conditions are affecting their approach to saving and investing, the average amount held in a Registered Retirement Savings Plan (RRSP) increased by two percent annually to $144,613 in 2022, according to BMO.

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About 43 percent said they had already contributed to their RRSPs for tax year 2022, and another 14 percent said they would contribute before the March 1, 2023 deadline.

Ahmed-Haq says there are strategies to keep your retirement savings on track if you’re not financially able to contribute as much as you normally would like that year.

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In the short term, try to put just enough money into your RRSP to fall into the next marginal tax bracket, says Ahmed-Haq. This way you pay a lower tax rate with a reduced taxable income.

But instead of trying to put in a big lump sum over the next three weeks to meet your savings goals, she recommends taking what you’re short of this year and breaking it up into digestible monthly payments over the next year or two .

An effective RRSP savings strategy typically doesn’t involve a series of large, one-off contributions, Ahmed-Haq adds.

It’s important to “flex your savings muscles” and get used to monthly contributions – even if these payments are smaller than you would like in economically difficult times.

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How much money do I need for the pension?

The idea of a high pension number has changed over time – Ahmed-Haq says it used to be that Canadians could aim for $1 million to retire comfortably.

While inflation and other economic factors have pushed this number up over time, she adds that it’s also a very personal number, depending on how you plan to spend your retirement.

She recommends working with a financial advisor to figure out realistic savings goals for the type of retirement you want: quiet life in a downsized house or second home, and plenty of travel.

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Dabu agrees. She tells Global News the first step for Canadians is to work out their plan with a professional before trying to figure out if they’re lagging behind in retirement.

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While those just beginning to save may have longer horizons to consider tough years, those approaching retirement age may need to make some adjustments to their investment plans or lifestyle expectations, she says.

“It may mean that you either adjust your goal or maybe you make a compromise in order to maintain that goal and the austerity plan you originally set out to do,” she says.

The rigors of the COVID-19 pandemic and the past year of inflation and rising interest rates should show Canadians the importance of not only having a plan, but also “stress testing” it under changing economic and market conditions can, adds Dabu.

But again, Ahmed-Haq argues that when it comes to retirement, the means are often more important than the ends.

“Make it a goal that I set aside something for my retirement each month and invest it for the long term,” she says. “That will serve you better than saying, ‘I want to hit $1.7 million sometime.’”

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Source: globalnews.ca

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