Will You Have Saved Enough For Your Retirement?

“Totally Inadequate Retirement Savings”

Broadbent Institute, an Ottawa-based think tank, issued a report recently claiming that the great majority of members of the 55 to 64 age group without an employer pension plan have “totally inadequate retirement savings” and that 11.1% of Canadians aged 65 and over lived in poverty in 2013. The author suggests increasing the GIS, or Guaranteed Income Supplement as a feasible solution to help those retired Canadians living in poverty.

Low-Income Measure (LIM)

The poverty rates are calculated using LIM, or low-income measure after tax, which represents half of the median after-tax income of comparable families.

While discussing retirement savings/assets, the author explicitly excluded home equity, arguing that owning a home in retirement is part of maintaining the same lifestyle as before retirement. For most Canadians, the house could easily be the most valuable savings one can ever have. It’s hardly imaginable to have someone living below poverty line when they own a million-dollar house.

GIS Insufficient

I agree that a lot of elderly people need financial help in their retirement, but transferring the burden of maintaining a lifestyle beyond their means onto other taxpayers might not always be the best solution. Instead of income-testing the eligibility of GIS, maybe we should change it to asset- or net worth-based testing before boosting it up. This way, a higher GIS payment could be made available to those in need without increasing the already heavy burden of taxpayers in subsidizing an unsustainable lifestyle of a certain group of people.

Retirement Savings Vehicles

Facing an aging society, the policy makers should focus on decreasing the number of retirees living in poverty, and not on enabling people to maintain a comparable lifestyle in retirement. Maintaining a certain lifestyle is a personal choice and rightfully so. To enjoy a certain lifestyle, individuals should be encouraged to save for their retirements, making use of the currently available savings mechanisms, like RRSP and TFSA.

Ranting aside, will you have saved enough for your retirement if you do not, like most Canadians, have an employer-sponsored defined benefit pension? If we do not start saving early, we might just end up living below poverty line in retirement and need taxpayer bailout.

Retirement Calculators

Searching the internet, you will find plenty of retirement calculators, which normally evaluates your financial needs in your retirement with your currents assets and savings before telling you how much more you need to put aside if you risk ending up on the short end in retirement. If you decide that you need to save more to meet your retirement needs, feel free to refer to my other articles dealing with retirement savings.

If you are interested in the above-mentioned report from the Broadbent Institute, follow this link for the report in .pdf format (link valid at the time of posting of this article).