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Gen Y to get burned in retirement?

With the RRSP deadline just days away, Canadian banks are ramping up their efforts to persuade people any time is a good time to save.

Most of the literature focuses on Canadians' struggle to sock away a little money. In a seven-page report published this week, CIBC highlighted the troubling outlook for Gen Y, and suggested this group's retirement standard of living could be 20 per cent lower or more as they leave the workforce.

That's largely because of a sharp decline in the rate at which people are saving, not-so-great investment returns and less attractive company pension plans, write CIBC economists Benjamin Tal and Avery Shenfeld.

Part of the solution is to put away as much as you can, however you can. Another way to combat the savings squeeze is government action.


This week, Gerry McCaughey, the bank's chief executive officer, said in speech that people should be able to make additional, voluntary contributions to the Canada Pension Plan beyond what is automatically taken off pay cheques.

Citing the report from the bank's economists, McCaughey flagged the troubling fact that 5.8 million Canadians are on track to be negatively impacted the most.

"And, here is perhaps the most alarming takeaway: when we look at those 5.8 million people - we see that most of them are young," he said.

People born during the Second World War are most likely to have the same standard of living, and Baby Boomers are only slightly impacted. But their children are far less well positioned, the report notes.

The bottom line is the retirement gap "wasn’t just good fortune, ”the economists said, noting savings behavior looks to have "fallen off a cliff" with the savings rate dropping to as low as 4 per cent from 15 to 20 per cent a few decades ago.

“Savings rates were substantially higher, private pension plans were more comprehensive and the public system, through CPP, GIS and OAS filled in the remaining gaps."

The way forward

While people born in 1970s and 1980s are predicted to be hit hardest, the economists stress nothing is set in stone and there's time to set a sea change.

Better late than never, says TD Bank, which in a poll released this week showed that 60 per cent of Canadians who intend to contribute to an RRSP will do so over the next two weeks.

But there's really no reason to wait until the last minute, says Kim Parlee, vice president at TD Wealth Management, who cited several misconceptions about RRSP savings.

On not having money to save, Parlee cited Statistics Canada research that showed in 2011, the median amount Canadians contributed to an RRSP was $2,830.

"If you break that down, it's only slightly more than $50 a week," said Parlee. "That's not a lot week-to-week, but it does add up over the long-term." Contributing throughout the year can also mean reaping the small rewards of compound interest, she added.

Jason Round, head of financial planning support at RBC Financial Planning, also highlighted five barriers to "getting in the game" early in a published poll. One major myth is that people believe it's easier to catch up on RRSP savings when you are older and more established.

"While you may be more established when older, you may also have more financial responsibility" such as mortgages and children, he said.

"Contributing early and regularly allows you to apply a ‘pay yourself first’ approach to managing your finances and the added benefit of compounding."