Amanda Neale-Robinson –
A BMO Financial Group study has revealed that 80 per cent of Canadians between the ages of 18 and 34 are not very confident in their ability to save for retirement. Further, 55 per cent think they will either be unable or just equally able to achieve their ideal retirement lifestyle, compared to their parents’ ability to do so.
This could be related to many young people focusing more on paying down debt than on saving for retirement. According to Statistics Canada, personal debt levels climbed to an unprecedented 164.6 per cent in the third quarter of 2012, meaning Canadians owe an average of $1.65 for every dollar of after-tax income they earn.
The BMO study revealed that almost half (46 per cent) of young Canadians are more concerned about paying down debt than saving for their retirement, with only one-in-four (24 per cent) more concerned about their retirement savings.
“While it’s admirable that young Canadians are focused on reducing their debt levels, they also need to allocate some money for their retirement needs,” said Janet Peddigrew, District Vice President, BMO Bank of Montreal. “By taking the time to identify both their short-term and long-term financial goals, young people can build a financial plan that works for their life now and well into the future.”
What Concerns Young People About Retirement?
When asked about their biggest concerns regarding retirement, young Canadians were candid about their apprehensions:
– Seventy-seven per cent fear outliving their retirement savings, and 61
per cent fear outliving their spouse, family and friends
– Seventy-two per cent fear developing physical health problems, and more
than half (58 per cent) fear developing mental health issues
– Seventy-two per cent worry about being unable to afford the lifestyle
they want in retirement
Where Will The Money Come From?
An overwhelming 94 per cent of young Canadians believe the Canada Pension Plan will play a role in providing funding for their retirement; 91 per cent also expect to rely on their Registered Retirement Savings Plans (RRSP). Others think they will get the money from:
– their employer pension plan (82 per cent)
– retirement income from their spouse (72 per cent)
– other savings (86 per cent)
– an inheritance (66 per cent)
“On average, the CPP pays out approximately $500 a month, so young Canadians should not rely on it too heavily to fund their retirement,” said Chris Buttigieg, Senior Manager, Wealth Planning Strategy, BMO Financial Group. “To maximize savings, Canadians should be putting away money for the long term and finding creative ways to build their retirement savings over time. For instance, a continuous savings plan allows investors to make small, regular automatic contributions to their RRSP directly from their bank account. It’s a great option for young Canadians who may feel overwhelmed trying to come up with a lump sum before the annual RRSP contribution deadline.”