Report By Ottawa Business Journal Staff
Thu, Jun 14, 2007 12:00 PM EST
Younger baby boomers are not saving enough money to cover even their basic household expenses in retirement, according to a study released Thursday.
A study by the University of Waterloo's Department of Statistics and Actuarial Science found that only one in three Canadians expecting to retire around 2030 are saving enough to meet basic household expenses in retirement. They are left with the option of retiring in poverty or working past the age of 65 unless they significantly increase their retirement savings.
The study, titled "Planning For Retirement: Are Canadians Saving Enough?", was carried out in April and focused on baby boomers born in the early to mid-1960s. two different income levels were examined: households earning the Average Industrial Wage ($40,000 in 2005) and those earning twice that amount. The study was sponsored by the Canadian Institute of Actuaries. "The message for most Canadians in their early to mid-40s is they will need to save more if they expect to enjoy an independent retirement," said institute president Normand Gendron.
"Governments need to provide Canadians with more education about the role that different savings vehicles can play in generating retirement income, and provide tools and incentives that encourage more households to save."
The study found that diversity is the key to saving enough. The one-third of households that is saving enough is doing so through a combination of home equity, company-sponsored pension plans, registered retirement savings plans and personal savings, the study found. These sources of income would supplement the modest monthly cheques from Old Age Security and the Canada/Quebec pension plans. Households that depend on only one type of savings vehicle for retirement consistently fall short of what they will need.
The study found that home equity is an important element for many Canadians, so much so that it suggests the government should make interest paid on a residential mortgage tax deductible. "We found that home equity can make a significant contribution to narrowing the gap, provided your home is paid for when you retire," said Steve Bonnar, one of three actuaries who directed the University of Waterloo project team. "Yet while home equity is important, on its own it is not enough to close the gap."
The study suggests many Canadians fail to appreciate how much money they will need to retire comfortably, since its results contradict a poll the institute also commissioned in April. The poll, conducted by Pollara Inc., found that "55 per cent of Canadians aged 40 or older feel some level of confidence that they will have the financial resources to retire comfortably."
Mohican's blunt evaluation is that it is very true that the average Canadian DOES NOT save enough to even meet basic expenses in retirement and I don't know where they expect the money to come from - the magic money fountain in the sky I guess.
As far as making mortgage interest tax deductible, that idea is bunk! bunk! bunk! If the government wants to encourage saving for retirement they should make it more lucrative for companies to have pension plans, encourage group retirement savings plans, and give bigger deductions for RRSP contributions. Encouraging people to buy a bigger house through mortgage interest deductability is not a good way to encourage savings.