According to a poll conducted by RBC, Canadians are cutting their expected retirement funds by an average of $200,000.
The 23rd Annual RBC RRSP Poll looked at Canadians who are yet to retire and found that the poll’s 2011 average savings ($718,000) fell to $564,000 in 2012.
Jason Round, head of Financial Planning Support for RBC, has a few ideas as to why we have seen a decrease in retirement saving estimates.
“I think it is a combination of things. Canadians are becoming more optimistic about the economy and the markets and might be building a little bit less of a ‘cushion’ into their savings expectations,” said Round in an email response to Humber News.
Round said there is also a trend of conservatism among new retirees versus previous generations.
But for younger generations still in college and looking for their first career, saving for a retirement should still be a priority, Round said.
“For younger Canadians, there’s a misconception that the amounts they can afford to save won’t make a difference. This isn’t the case – even a little can add up over time,” he said adding that automatic contributions offered by banks can do much of the work for you by transferring funds automatically.
Steven Bang, professor in the School of Business at Humber, said there are a few factors to take into consideration when looking at these stats.
Bang said he thinks the main reason we are seeing this reduction in estimates is that the concept of working in retirement is becoming a much more common scenario for Canadians.
“People are working longer,” he said, adding that the $200,000 reduction in the statistic could be a reflection of that.
“Humber doesn’t require you to retire. Ever,” he said. “You could teach until you’re 90 if you want.”
Bang recalled when he got his first job with a bank and said the estimates were much higher than the numbers provided by the poll. He thinks those high estimates were because people didn’t believe government assistance would be around for them.
“You can’t live on Old Age Security and Canada Pension Plan alone,” he said. “If you’ve maxed that (CPP) out, you will get pension, but it won’t be much to live on unless you live in a room, on your own.”
Round said that if there is one thing people get wrong when it comes to retirement is they are under the impression it’s too late to save.
“Always start with how you want your life to look in retirement. It’s important to take a step back from your financial worries and look at where your future is going,” said Round, adding that consulting a financial adviser is a great way in terms of understanding retirement funds.
Lauren Costello, 21, a first-year practical nursing student, said she hadn’t put much thought into retirement until she saw her grandparents’ spending habits change.
“My grandfather was forced into retirement last year, so they’ve been really cutting costs. Every penny matters with them now. Christmas was scarce. They buy everything no-name,” she said, adding that her grandparents saved a lot of money and she doesn’t think they have to be making cuts they are, and are just playing it safe.
Costello said retirement is really out of sight for her and that she’d rather take things one step at a time.
So what does Costello think is an appropriate amount in terms of retirement savings?
“Honestly, even $500,000 sounds like a lot of money,” she said, adding that she is planning to retire at the standard age of 65.