Cancel the Roaring Twenties: Skip the Post-COVID Spending Festival and use your savings to retire instead
Well into the second year of the pandemic, more people are concerned about how much they saved for retirement than about their physical and mental health, job security, and debt.
In other financial news, meanwhile, the country is preparing for a summer and fall edition that is expected to pour billions of additional savings accumulated during the pandemic into the economy.
In this separation lies a glimpse of Canadians and their retirement. There may not be an aspect of life that causes more worry and less action. Have you ever seen a survey, good times and bad, that people were generally happy with their retirement savings? Neither do I.
For the latest take on our complicated relationship with preparing for retirement, see the Healthcare of Ontario Pension Plan’s 2021 Canadian Retirement Survey. Of the 2,500 respondents surveyed in April, 48 percent said they were very concerned that they would have enough money in retirement. Only the cost of daily living was a major concern. Health and other financial / economic concerns lagged far behind.
Concerns about retirement are in part a function of economic vulnerability. The survey results suggest that 52 percent of Canadians have been financially harmed by the pandemic, especially younger and lower-income people.
Other vulnerable groups are indigenous and racialized seniors. They have median retirement earnings that are 25 percent and 32 percent lower, respectively, than white seniors, according to a separate report released this week by the Canadian Center for Policy Alternatives.
But higher earners are also worried about their retirement provision. In the HOOPP survey, 42 percent of those who earn more than $ 100,000 said they are very concerned about their retirement savings.
Let’s briefly recap some of the recent financial highlights these high earners have benefited from: rising house and cottage prices, dynamic stock markets, and rising demand and prices for everything from used cars to non-fungible tokens.
Another highlight for the wealthy is the opportunity to save more money than ever through economic lockdowns that have restricted travel, concerts, and commuting for many. In the HOOPP survey, almost half of the participants stated that they could save more money.
Some of this money is best kept in bank accounts for emergencies, another part can rightly be spent on a boom already known as the Roaring Twenties. But it is clear that tax-free savings accounts and registered retirement savings plans should save a lot for retirement.
People certainly understand the conceptual urgency of retirement planning. In the HOOPP survey, 67 percent of the participants agreed with the statement that there is an emerging pension crisis.
Check out the great daily cost of living concern for clues as to why people are doing more to prepare for retirement. Inflation, which reached 3.6 percent last month, the highest rate in a decade, is a particular concern for households financially suffering from the pandemic. But in a broader sense, the problem of retirement planning is that those with the spare change are unwilling to cram it into their daily living expenses.
Buying a home is a big part of the problem. The prices that home buyers pay in expensive cities across the country leave little scope for retirement provision in the short and medium term.
By the way: It is a personal financial fallacy that your home is your retirement provision. You want income-generating RRSPs and TFSAs to supplement your retirement benefits, retirement benefit, and, if you’re in the lucky minority, a company pension. In fact, much of the retirement income from all of these sources is used to keep your home going over the years so that you can get a fair price when you sell it.
As part of its lobbying work to promote company pension schemes, HOOPP commissioned an annual pension survey. “The survey results show that people are aware of their financial and behavioral inability to save for retirement,” said David Coletto, CEO of Abacus Data, the company that conducted the HOOPP survey. “This is where the pension helps – to overcome this psychology.”
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