The average 45-year-old Canadian employee earning $60,000 per year will need to accumulate $1.4 million in retirement savings by age 65 if they want to retire comfortably, according to a new report by Aon.
It found since 2019, the average employee requires an additional $100,000 in private retirement savings, partly due to a one per cent decrease in fixed income returns over the last three years.
While $1.4 million is a significant amount, employers can support workers by incentivizing them to contribute to their pension or retirement savings plans, says Emilie Alary, a senior consultant for wealth solutions at Aon.
“The key [for employees] is to start contributing early and the key for employers is to get employees interested [in contributing to their plan]. Plans that are structured with an employer match for the employee contribution are a good incentive for employees to save. Employers need to make sure employees take advantage of this option — the higher the contribution, the better [the employee’s] situation.”
An effective plan design also plays a role in encouraging employee contributions, she adds. “For example, if you have a plan where contributions increase with years of service, we know it’s important to start [contributing] early, so is a plan like that really supporting that? Sometimes these designs were put in place because an employer was transitioning from a defined benefit plan and giving more to those with more service.”
And for employees who still come up short on this target amount, a reduction in post-retirement spending or a delayed retirement — or combination of both — can help bridge the savings gap, says Alary.