The average Canadian employee will have to accumulate 10.9 times their final pay to maintain the same spendable income once they retire, according to a new report by Aon.
The report defines retirement income adequacy as having the same spendable income after retirement as before, taking into account changes in savings, taxes, medical expenses and other factors. It compares the anticipated accumulation of retirement savings (as a multiple of final pay) to the target accumulation required to maintain an employee’s standard of living after retirement.
“The retirement readiness gap is real for Canadian workers,” said William da Silva, senior partner and Canadian director of retirement solutions at Aon, in a press release. “This is an opportunity for employers to ask the right questions: Are contribution levels appropriate and designed in alignment with the plan sponsor’s objectives? Are employees equipped with resources to manage their finances and plan for their retirement? Do employees understand the impacts of medical cost inflation and other post-retirement expenses? Clearly, there’s a need to look both at the substance of workplace retirement programs and at the ‘soft’ levers of education and information.”
The report also found, on average, Canadian employees must save 16 per cent of their annual pay in workplace and personal retirement plans every year from age 25. In the absence of personal savings, the average Canadian will come up short against the 10.9 times pay goal, it said, noting they’d have to delay retirement to age 70 to be financially ready to retire and maintain the same net available income after retirement or lower their standard of living by about 30 per cent to make up for the savings shortfall.
“Every employee has unique circumstances and how much an individual should save ultimately depends on their own goals and resources,” said Rosalind Gilbert, senior actuary and associate partner in retirement solutions at Aon. “Canadian employees have clear expectations that their employer should provide increased support for their overall financial well-being and capital accumulation plan sponsors are focusing on areas that are well-aligned with this objective. The [report] arms employers with analytics to identify the overall retirement readiness of their workforce and identify strategies to address employee needs.”