Employees still not saving enough for their retirement: Survey

Education, financial literacy crucial in preparing employees to retire

The good news is most of your employees are building at least some savings for retirement — on average, six in 10 Canadians are putting money away, most often in registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs). 

The bad news? Sixty per cent aren’t saving enough. 

That’s according to one of two retirement-readiness surveys by the Conference Board of Canada — one examining employee and retiree perspectives, the other taking a look at the employer side. 

“Our aim was to really drill down further on some of the issues facing organizations and individuals,” said Judith MacBride-King, director of age, work and society at the Conference Board in Ottawa. 

A key objective was to take a closer look at financial literacy — how widespread are employees’ knowledge gaps, and what can employers to do address them?

“It’s an incredibly important issue for us as individuals and for organizations to help individuals to ramp up their knowledge in terms of financial literacy,” she said. 

Retirement readiness
The average age employees plan to retire at is 63.2 years, according to Retirement Perspectives and Plans: A Survey of Non-reitrees and Retirees in Canada, which surveyed 1,656 individuals. 

But that number is rising, said MacBride-King, and employers are reporting employees are leaving later and later. 

“There were differences by demographic... for example, the self-employed were planning to retire a little bit later, at 65.5 years of age, versus those who were employed at 62.4 years of age. (In) the public sector, people are going to exit about 2.5 (years) earlier than those at the private sector and about 3.5 years earlier than those in the not-for-profit sector,” she said.

“Young people, under age 25, were the most optimistic… the average age of (expected) retirement was 60.1 for them.”

But we’ll likely continue to see older workers staying in the labour force for longer, said MacBride-King. 

“Some have postponed their retirement — in fact, about 32 per cent of those we surveyed said they shifted out their retirement past the plan. And most of these — two-thirds — plan to retire later as opposed to earlier. And the chief reason for that is affordability.”

A critical piece of retirement affordability is increasing life expectancy, said James Koo, partner at Aon Hewitt in Toronto. 

“If people are going to live to age 88 or 90, then it becomes very expensive to retire at 65,” he said. 

Up to 19 per cent of survey respondents said they never expect to be able to retire.

Only four in 10 respondents said planning for retirement is a priority, said MacBride-King, and 42 per cent of employers feel employees are overly optimistic about their retirement prospects, according to the employer survey of 177 respondents. 

Most employers (64 per cent) have more than one retirement savings plan or pension plan for their workforce, according to An Employer’s Perspective: Retirement Savings and Preparedness. Thirty-four per cent have one plan in place while just two per cent have no plan in place.

Group RRSPs (63 per cent), defined benefit plans (56 per cent) and defined contribution plans (50 per cent) are the most common offerings among employers.

But Adwoa Buahene, managing partner at n-gen Performance in Toronto, said even when such employer plans are offered, younger generations may be hesitant about making contributions. 

“For a lot of gen X-ers, there would be a fear that (a defined benefit plan) is going to get drained by the baby boomers. So, do I really want to contribute to a defined benefit plan?” she asked. 

“(There are) evidence and signs to us that we will have to save for ourselves and we will have to take care of ourselves.”

But, at the same time, it’s difficult to convince employees to tuck away a large portion of their salaries for the distant future, said Sylvia Ceacero, CEO of the National Association of Federal Retirees in Ottawa.

“If you are forced or encouraged to save towards your retirement, you will (do so)… Otherwise, as the research has shown, very few of us have the (luxury) of being able to put 18, 20 per cent of our current salary towards our retirement,” she said. 

Financial literacy 
The situation is further complicated by employees’ widespread knowledge gaps when it comes to retirement savings and financial literacy, said MacBride-King. 

Almost four in 10 survey respondents said they don’t know how much money they will need for their eventual retirement, she said. 

“We have a lot to do in our organizations to help educate people, and to help ready them for their eventual retirement,” said MacBride-King. 

“Some people didn’t even know they had a (workplace) plan, so we’ve got a lot to do in this context.”

Financial illiteracy should be a shared concern, said Susan Eng, vice-president of advocacy for CARP in Toronto. 

“Unfortunately, this isn’t only the individual’s problem because… being afraid and being illiterate at the same time is a formula for concern (for) us as a society,” she said. 

When people haven’t saved adequately, it impacts everyone, said Eng, causing increased reliance on social safety nets, less buying power and strain on the economy.

“All of these things are negatives that come as a direct result, frankly, of people not being aware of what they need to retire adequately (and) not taking action early enough.”

Employers are trying different approaches to boost financial literacy within their organizations, said Koo. 

“There has been a reluctance from employers to offer broader investment advice but I think there are always going to be employees who, no matter how much education you do, they’re always going to want more advice.”

In the survey, communication and education ranked among the top things employees want from their organizations, said MacBride-King. 

“They said, ‘We want to ensure that… people have access to some sort of retirement savings plan in the first place,’” she said, along with a fair income that allows them the flexibility to save money.

“Other than that, the number one thing they thought was most important was to provide staff with the tools to make those decisions. Do more to help people prepare psychologically for transitioning from one era of their life to another era.”

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