Average worker needs 11 times final pay to retire: Report

Many employees would have to delay retirement to 70 to be financially ready

Average worker needs 11 times final pay to retire: Report
Many Canadian workers would have to delay retirement to age 70 to be financially ready to retire, says Aon.

The average Canadian worker will need to accumulate 10.9 times their final pay to maintain the same spendable income after retirement, according to Aon.

In the absence of personal savings, the average Canadian employee – aged 45 with annual earnings of $60,000 and a workplace retirement savings plan with the employer matching five per cent employee contributions – will come up short against the 10.9 times pay goal.

They would have to delay retirement to age 70 to be financially ready to retire and maintain the same net available income after retirement or lower their standard of living by about 30 per cent to make up for the savings shortfall, says Aon.

“The retirement readiness gap is real for Canadian workers,” says William da Silva, senior partner and Canadian director of retirement solutions at Aon.

“This is an opportunity for employers to ask the right questions: Are contribution levels appropriate, and designed in alignment with the plan sponsor’s objectives? Are employees equipped with resources to manage their finances and plan for their retirement? Do employees understand the impacts of medical cost inflation and other post-retirement expenses? Clearly, there’s a need to look both at the substance of workplace retirement programs and at the ‘soft’ levers of education and information.”

Retirement income adequacy means having the same spendable income after retirement as before, taking into account changes in savings, taxes, medical expenses and other factors, according to Aon’s Real Deal report.

Retirement income comes from various sources, including workplace retirement savings plans, government pensions and personal savings. On average, Canadian employees need to have 16 per cent of their annual pay going into the workplace and personal retirement savings every year from age 25, says Aon.

Four in 10 (40 per cent) pre-retirees have a negative outlook about their life in retirement – the highest rate of negative retirement perception among Canadians since 2014, according to a June report from Fidelity Investment Canada.

Even before the pandemic, many Canadians worried about their finances for two hours each day, according to a survey by Scotiabank.

Preparing employees

If employees are unsure of where they stand financially, helping them prepare for retirement can potentially result in positive outcomes for a business, says Manulife, by:

  • reducing employee stress
  • improving employee wellness
  • boosting productivity

Plan sponsors are in a position to encourage plan members to think about the financial aspects of living in retirement as many employees trust the advice and recommendations provided by their employers when it comes to financial products, services or organizations, says Manulife.

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