It’s never too early to start thinking about retirement
Recently, Toronto ranked No. 1 for the highest median price for one-bedroom apartments, at $2,300. The recent prevalence of part-time employment, freelance work and short-term contracts in place of full employment makes that number even more staggering. But with all that in front of us, it is never too early to start thinking about retirement.
The assumption among millennials is that we will never own homes and will be working forever. Seven in ten (70 per cent) are concerned that rising home prices will prevent them from being able to afford the home they want. With the way things look right now, there isn’t much evidence that either of those will change. The National Institute on Ageing (NIA) is offering up some solutions on how the Canadian government can start to make a difference.
The NIA is a think tank based at the Ted Rogers School of Management at Ryerson University. It recently released a paper titled Improving Canada’s Retirement System Income, which looks at some of the challenges in the current system and how they can be addressed.
The average Canadian household has $3,000 saved at the point of entering retirement, without a workplace pension. This isn’t nearly enough to live comfortably during the last years of your life. Out of the 19 million working Canadians, 12 million of them are not a part of a defined benefit pension plan. For those without a workplace pension — and that’s most Canadians — the options for saving are not ideal.
With a defined benefit plan, you get the most security; a percentage is taken out of your pay, coupled with a contribution from your employer. You are guaranteed a certain amount of money for the rest of your life once you hit retirement. This is exactly the type of plan that most Canadians do not have.
The remainder of working Canadians have variations of a contribution plan, where they continuously put money into an account that builds over time.
Michael Nicin, the executive director at NIA, says he understands the complications of finding ways to save money.
“The general advice is to start saving, you know, deal with your immediate pressures right away,” he added.
Those immediate pressures are stronger than ever before. Between debt and the ever-rising cost of living, saving for retirement is put on the back burner.
Canadians are living longer than ever before. The average life expectancy for someone born in Canada is 81. That’s six years longer than the life expectancy age — 75 years, or about 10 years into retirement — which was used when the Old Age Security Act was designed. There is still no guarantee that you will even be able to retire once you reach 65.
One in five Canadian seniors, which is about one million people, are still in the workforce. People living longer is equalling to people working longer. Attempts have been made to change the legal retirement age, to 67 from 65, and there are incentives for seniors to delay their pension to age 71.
For millenials, these figures may feel decades away from being relevant. But the earlier you start thinking about retirement, the less you’ll have to save on a weekly or monthly basis to end up with enough. I spoke with Dr. Samir Sinha, director of geriatrics at Mount Sinai, on the public perception of the Canada Pension Plan versus the harsh realities of what their future might entail.
“The problem is, in a society where we actually aren’t really explaining things to people, we need to do a better job as a government, about helping everybody understand what their future will entail,” Sinha said.
Sinha is referring to the assumptions Canadians have about the CPP (the Canada Pension Plan). There is some guaranteed money once you are ready to retire; there is a partial earnings replacement that covers 25 per cent of your average earnings, capped at about $55,000. This works out to less than $14,000 a year and there are other incentives that can get you a little north of $20,000 for the year. This is the typical fate for those who do not have a pension plan with their employer.
If Canadians were aware of the quality of life they are headed towards come retirement, they might look at things differently.
Nicin says this deserves a lot more attention, a lot earlier.
“Do people have enough time to really accumulate savings (when) pension plans aren’t there?” said Nicin. “You start seeing that we have something, not quite a crisis, but a lot of attention needs to be paid to the aging population now … what can we do now to make sure that we don’t stay in the situation for people who are coming up,” he said.
Education is imperative when talking about one’s financial future. The NIA’s paper is loaded with information on the state of the retirement system in Canada, as well as suggestions for improvement.
In reading the report, I came across several sections that needed re-reading and terms I had to type into Google to fully understand. How can millennials make decisions for their future with information they either don’t have or can’t comprehend?
Retirement may be an unseeable future for young Canadians, but decisions made today are a part of what the future will be. Sinha explains the importance of these priorities.
“By putting aside a few hundred dollars a month, that might mean I might have to delay a housing purchase, I might have to do that. But that’s securing your future. And it’s those trade-offs.”
The missing solution is how we disseminate this useful information for those that need it the most — those that do not have a good pension plan and those who may never work for the same employer for more than five years. This information should be mandatory for anyone entering the workforce, whether it be an online module or a course at Ryerson University. Young adults should be well equipped to make decisions that will affect their future.
The National Institute on Ageing will hold its first annual conference at the Sears Atrium at Ryerson on October 1.