Retirement Most Canadians are feeling increasingly out of reach with a decade of high inflation behind them and rumors of a possible recession ahead, according to a new survey from the BMO.
The survey says Canadians now believe they will need $1.7 million to retire, up 20 percent from 2020’s $1.4 million figure, but less than half of that number. respondents (44%) said they were “confident” they would have enough money to retire — down 10 percentage points from 2020.
The BMO report, released Tuesday, is based on an online poll conducted by Pollara Strategy Insights in November. It found that 74 percent of 1,500 Canadians surveyed were concerned about How current economic conditions such as inflation will affect their financial situation.
Nearly 60% said they believe these factors will affect their confidence in meeting retirement goals.
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Caroline Dabu, BMO’s head of wealth distribution and advisory services, said the higher levels for retirement and the decline in confidence in reaching those goals reflect the cost over a year. The past half and a half have affected Canadians financially and their worries.
“That really reflects the Canadian saying: ‘I’m feeling a crisis,'” she said.
Personal finance expert Rubina Ahmed-Haq told Global News that as rising living costs eat away at household incomes, Canadians tend to give up on their savings goals.
“When you have more money to pay off your mortgage, pay for groceries, pay for everyday items, there is less money left over for long-term planning,” she says. “All of that will be ignored when everything else costs you a lot more.”
Pausing retirement savings and investment plans for a year, says Ahmed-Haq, can “make sense” for your overall trajectory, especially when you’re young. Taking advantage of the benefits of compounding on your contributions at a young age can be crucial to achieving retirement goals in the next 25 to 30 years, she says.
Ahmed-Haq notes that the longer your investment horizon, the less likely your retirement savings will be impacted in a year — for better or worse.
“A year is not going to make or break anyone,” she said.
While the majority of survey respondents said current economic conditions are affecting their approach to saving and investing, the average amount kept in a Registered Retirement Savings Plan (RRSP) has grown two percent annually to $144,613 by 2022, according to the BMO.
About 43% said they had contributed to their RRSP for tax year 2022, with another 14% saying they would contribute before the March 1, 2023 deadline.
Ahmed-Haq says that if you don’t have the financial means to contribute as much as you’d like this year, there are strategies in place to keep your retirement savings on track.
In the short term, try to put just enough money into your RRSP to get you into the next marginal tax bracket, says Ahmed-Haq. This way, you will pay a lower tax rate with reduced taxable income.
But instead of trying to put in a big chunk of money over the next three weeks to hit your savings goal, she recommends taking any money you’re short on this year and breaking it down into monthly payments. months can be digested in the next year or two.
An effective RRSP savings strategy often doesn’t involve a series of large, one-time contributions, adds Ahmed-Haq.
The key is to “flex that savings muscle” and maintain the habit of making monthly contributions — even if those deposits are smaller than you’d like during tough economic times.
How much money do I need to retire?
The idea of a large retirement number has changed over time — Ahmed-Haq says Canadians could previously aim for $1 million to retire comfortably.
While inflation and other economic factors have driven that number higher over time, she adds that it’s also a very personal number depending on how you want to live in retirement.
She recommends working with a financial advisor to figure out what savings goals are realistic for the kind of retirement you want: a quiet life in a small home, or a second property. and lots of travel.
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Dabu agrees. She told Global News that the first step for Canadians is figuring out their plans with a professional before trying to figure out if they’ll be late for retirement.
While those just starting out on their savings journey may have a longer time to account for the tough years, those nearing retirement age may have to make some adjustments to their investment plans or their lifestyle expectations, she said.
“It could mean tweaking your goal, or it could mean trade-offs to being able to keep hitting it and maintaining the savings trajectory you initially set for yourself,” she says. .
Dabu added that the hardships of the COVID-19 pandemic and rising inflation and interest rates over the past year will show Canadians how important it is to not only have a plan, but be able to “stress-test.” plan in light of changing market and economic conditions.
But again, Ahmed-Haq argues that in retirement, the means are often more important than the ends.
“Set a goal that every month, I will set aside something for my retirement, and I will invest that money in the long run,” she says. “That will serve you better than trying to say, ‘I want to hit $1.7 million at some point.’”
© 2023 Global News, a division of Corus Entertainment Inc.
