It may be a while before young Canadians stop working, but retirement still feels like a mountain to climb for most, according to new surveys released this week.
On average, Canadian couples say they need $1.7 million in savings to be able to retire comfortably, BMO’s Annual Retirement Survey says. This figure is up from $1.54 million in last year’s survey.
This figure represents the total retirement savings for a household, BMO senior portfolio manager Terri Szego told Global News.
This means each person in a couple would have to have around $850,000 to reach that goal.
A similar RBC survey puts that figure around $814,000.
However, the RBC survey says millennials feel they will need nearly a million ($999,000) in individual savings to have a shot at a comfortable retirement, because inflation will have raised the cost of living significantly by the time they hang up their boots.
This figure only represents an average of what respondents said and the actual goal may be different depending on the kind of life you want to live in retirement, Szego said.
“Every individual and couple are different in terms of what they spend now, what they’re saving, and then what they think they’ll spend in retirement,” she said.
“You might not even need $750,000 if you are fairly modest in what you spend (in retirement). It really comes down to lifestyle,” she added.
Despite these lofty goals, however, young Canadians feel like they are falling behind.
The average amount a millennial has saved so far is $126,000, the RBC survey showed, with 64 per cent of millennials saying they are anxious about what the future holds for their finances and 59 per cent saying they don’t feel financially secure.
Based on three separate retirement calculators, the average millennial may be well into their 70s by the time they achieve that target savings goal of $850,000.
On average, Canadians start planning their retirement at age 30, with plans to retire at 61, a recent CIBC survey shows.
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If a person with no savings and $50,000 in annual earnings starts putting $425 every month towards their Registered Retirement Savings Plan (RRSP) and investing it, they will be 73 by the time they save up $880,000, the retirement calculator from investment platform Wealthsimple shows.
According to RBC’s investment calculator, they would have $861,235.85 in savings by the time they’re 75, while the TD calculator says you would have $855,203 in savings by that age if you put $425 a month.
The calculations from the banks assume that your investments would increase by around five per cent every year, while the Wealthsimple calculations assumes a 5.75 per cent growth rate.
While many financial advisers recommend putting around 10 per cent of their paycheque towards retirement every month, Jodi Wright, head of RBC Financial Planning, said that can be hard for young Canadians struggling with day-to-day expenses.
How they would like retirement to look is “a very ambiguous question to ask someone who’s young,” Wright said.
“They can’t even think about how they’re necessarily going to pay the bill next month,” she added.
Planning your retirement goal with your partner in a dual-income home can “significantly impact” how much you manage to save for retirement, Wright said.
“You’ve got your rent or mortgage, utility bills, insurance, property taxes to pay. When you’ve got two incomes that are working towards that, mathematically, you should be able to have a greater amount left over to save or to invest,” she said.
This has caused many young, single Canadians to wonder if they should “couple up” to have a shot at a comfortable retirement, she said.
“I see more and more individuals, even friends, saying, ‘Hey, let’s live together for maybe longer than we would have. Let’s pool our income together to be able to afford the things that we need and afford the things we want,” Wright added.
Making sure the money in your RRSP is invested and is not being used as just a tax shelter can go a long way, Szego said.
With the growth compounding over the long term, you may not need to save the entire goal amount — the growth in your investments will do part of the job for you, she said.
“When you earn, let’s say five per cent on your investments, the next year you’re going to earn five percent on the previous year’s five per cent and then next year, you’re going earn five per cent on the previous two years’ five per cent. That function of compounding really starts to kick in when you start investing at a young age,” she said.
Even a small amount invested early can go a long way towards your retirement goal, Wright said.
“Starting small and starting somewhere is more important than not starting and putting your head in the sand,” she said.
Stretching and squeezing your contributions depending on the stage of life you’re at — much like an accordion — can be a strategy to give yourself some breathing room when it comes to managing day-to-day costs, Szego said.
“There’s certain periods of time in your life that are really expensive,” she said, pointing to life events like the birth of a child or a home purchase.
“When you get through some of those really tough, expensive years or you get an increase in your pay, try to add to the savings pot rather than sort of just spending that.”
