Debt stops Canadians from saving for retirement

As Canadians struggle with high levels of household debt, saving for retirement is taking a back seat for many employees—yet, on average, Canadians expect about one-quarter of their retirement income to come from personal savings.

This is according to the 2014 Sun Life Canadian Unretirement Index. The survey reveals that Canadians, on average, expect 27% of their retirement income to come from personal savings, 23% from employer plans, 30% from government programs such as the Canadian Pension Plan and Old Age Security, 10% from home equity, 5% from inheritance, and 6% from other sources.

Saving vs. debt repayment
The study also shows that saving for retirement takes a backseat to paying down debt. Thirty-nine percent of respondents say paying down personal loans, their credit cards or other debt is their first priority. In comparison, saving for retirement is the first priority for only 26% of Canadians. “This is understandable, given household debt levels across the country,” the report notes. “The average Canadian household lives with a debt-to-disposable-income ratio of well above 160%.”

Although Canadians can’t make saving for retirement their top priority, they’re feeling more satisfied with their retirement savings. This year, 38% report satisfaction, compared to 34% last year. As many as 80% of respondents are upbeat about their ability to take care of basic living expenses during their golden years, compared to 78% in 2013. And 71% are optimistic about their ability to take care of medical expenses in retirement—up from 69% last year.

It’s hard to tell whether these numbers mean that Canadians harbour a false sense of security about their retirement readiness, says Brigitte Parent, senior vice-president, individual insurance and investments, with Sun Life Financial. However, “it really points to the need for people to have a better sense of where their income [will come from]. It’s really about understanding the risks people will face in retirement,” she says, adding that it’s also crucial for Canadians to assess what their needs and desires will be once they stop working.

Early retirement, anyone?
Additionally, the report finds that almost a third of Canadians expect to be fully retired and not working at 66. Almost one third expect to work full time and yet another third anticipate that they will be working part time. Fifteen percent are not sure what they will do, while 2% believe they won’t be alive by then. Of those who expect to work past the age of 65, 35% say they will do so because they want to, while 65% say they will do it out of necessity.

Despite these numbers, the report points to an emerging sense of optimism as far as early retirement is concerned. The study notes that on average, Canadians anticipate that their retirement will start at age 66—lower than last year’s result of 67 and the lowest figure in four years. This year, 8% of respondents say they intend to retire before turning 60. Another 27% plan to stop working between 60 and 65.

One possible reason for this positive sentiment is the economic recovery, Parent says.

But whether one plans to retire early or late, it’s crucial to have a solid financial plan, she explains. “Building a plan along the way is really the critical point.”

Employers have been trying to help in that regard. “We see more and more employers wanting to provide education about the benefits of their existing [workplace pension] program,” Parent says.

Conducted by Ipsos Reid, the survey polled 3,005 working Canadians between the ages of 30 and 65.

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