It seems every week there is a new story in the news about how Canadians aren’t saving enough for retirement. The Canadian government has also taken up this cause, with a call for increases to Canada Pension Plan (CPP) contributions on the part of both employers and employees as a measure to help fix the gap in savings.
Canadians can’t afford to save more than they are
According to a recent Ispos-Reid poll, 60% of Canadians can’t afford to save more than they currently are for retirement. Only 18% of Canadians agreed that CPP hikes were a good idea. Canadians would rather see their taxes reduced (39%) and be given new incentives to save for retirement (37%).
Canadians have less control over what is in their government-held CPP account than they do over a TFSA or RRSP account. While it isn’t likely that the government will claw back CPP, they do have the ability to do so, while the only thing the government can do to a TFSA or RRSP is increase withdrawal taxes or change regulations on allowable yearly deposits.
C.D. Howe Institute says Canadians are saving enough
Much of the recent calls for more savings from the financial industry and government have come from the fact that the overall Canadian household savings rate is down to 5%, where it was around 20% in the 1980’s. The C.D. Howe Institute claims that the number is closer to 14%, as it doesn’t take pension plan and RRSP withdrawals into account, or reductions on rates of return in retirement savings.
In addition, the Institute calls into question the usual number of 70% of your income to live on in retirement. Prior to retirement, salary levels are usually at the highest they have ever been in an individual’s working life – with this being the case, it states that 50% of a pre-retirement income is usually enough.
Do we still need to save more?
If the C.D. Howe Institute’s premise is true, that still leaves a 6% gap between our savings levels now and our savings levels in the 1980’s. But a mandatory CPP hike, or any other form of forced savings by the government, isn’t the way to get it done. Lower-income Canadians simply can’t afford to save while making ends meet, and taking a bigger bite out of their paycheques only sets them back further. This is the bracket that would benefit most from tax cuts, since they could use the money from this for retirement savings. Middle and higher income Canadians have already been given an additional incentive with the recent increase on TFSA contributions to $10,000 annually.
Any way you slice it, we can arrive at shortfalls in retirement savings from multiple factors. Decreased rates of returns on investments, divorce, and the inability to save are all factors that can significantly affect saving for retirement.
Reverse mortgages can help to fill shortfalls in retirement savings with a loan against up to 50% of your home’s equity, with no need to make monthly or any other form of payment until the home is sold. Contact Horizon Equity today to find out more.