Don’t freak out over the latest warning you're not saving enough for retirement

If you’re a Canadian nearing retirement age, you’re probably in a bit of a tizzy after the latest study from the Broadbent Institute, which said you’re not saving enough.

But not all financial experts are convinced.

Of the half of Canadian couples between 55 and 64 without employer pensions, only 15 to 20 per cent have actually squirreled away enough to supplement government benefits and the Canada/Quebec Pension Plans, says the report by the left-leaning think-tank.

“Poverty rates have been rising and recently plateaued for seniors, and savings data show that many Canadians, particularly those without an employer pension plan, have wholly inadequate retirement savings,” say the report’s authors.

According to the study, roughly half of those employer pension-less couples have savings to last a year and fewer than 20 per cent have enough savings to supplement their Old Age Security/Guaranteed Income Supplement and CPP/QPP.

While the Canada Pension Plan pays out $12,780 a year maximum, many retirees don’t qualify for that amount, with average payment for men last year being $7,626 and the average for women $5,922. The OAS maxes out at $6,839 with the poorest seniors collecting Guaranteed Annual Income.

“The combined plans fall below $20,000 for an individual,” co-author of the report and pension consultant Richard Shillington told Report on Business.

Nathan Parkhouse, certified financial planner at Parkhouse Financial, calls the report “scary” saying it’s in line with the inadequate savings he’s seeing amongst retirees.

“I have clients with $300,000 or $400,000, people who have actually put aside some savings,” says Parkhouse. “(But because) both of their kids are still in university or just finished and are living at home without a job, they’re not just supporting themselves – there’s no way that $400,000 is going to cut it for them in five to ten years.”

He points out that many Canadians aren’t doing the number of things they should be when it comes to retirement – pay yourself first and aggressively make you biggest expense saving for life post-work.

“The boomers, 55 to 64, that generation has done everything for their children that they never had,” says Parkhouse. “Unfortunately it’s backfiring because a lot of them as well are depending on that factor that nobody ever talks about out loud, which is when my parents pass they’re going to get their money (but) super senior citizens are living longer and longer and depleting those assets.”

But Tim Cottee, vice president of retiree planning at Investors Group says he isn’t convinced by all the “doom and gloom” surrounding seniors savings.

“I’ve been studying this market for over a decade and there always seems to be waves of people who are in trouble, then people are okay, then they’re in trouble,” he says pointing to McKinsey’s survey last spring that found four out of five Canadians were financially on track for retirement. The study used StatsCan’s estimate that Canadians spend about two-thirds of what they would in a working year, for each year in retirement.

“The reality is, there are a number of people in Canada that will have issues when they retire,” explains Cottee. “If you have a person who has high expectations and hasn’t saved a dollar you’re going to be in trouble– that’s just math.”

But how much you need to retire on is a highly individual thing.

“If you ask people they’ll say 70 per cent – it’s a commonly held belief but 70 per cent of what? My after-tax take-home income? My pre-tax income?” he says. “It comes down to the individual reality.”

While reports like this can be used to provide a snapshot of a segment of the population, real preparedness for retirement is about starting early and adjusting a plan.

“It’s about making informed decisions not based on ‘I think,’ ‘I fear,’ ‘I feel’ or ‘I read,’ but based on taking a look at your situation, your expectations for what retirement means to you and lining those things up.”