Baby boomers’ savings are well below the levels needed to retire comfortably, and that’s making soon-to-be-retirees increasingly unsure about their golden years, according to a new study from the Bank of Montreal.
As many as 46 per cent of boomers surveyed weren’t confident they had sufficient savings to retire, almost double the 20 per cent who felt that way in 2006, before the economy went into a deep recession and interest rates fell to historic lows.
“We had the credit crisis in 2008 and there’s been quite a bit of volatility in the markets during that period; it’s also been a period of low yield,” said Chris Buttigieg, senior manager of wealth planning strategy at BMO Financial Group.
“Perhaps the boomers in 2006, when the markets were doing well, were invested (but) they may have been spooked from the markets as a result of the credit crisis and their portfolios may have impacted negatively.”
Boomers said they anticipated they will need a nest egg of about $658,000 to feel financially secure in retirement, but have so far have only put away about a third of that, the survey found.
According to Statistics Canada, the average senior couple spent about $54,100 in 2009. BMO says that based on historical returns and a four per cent withdrawal rate, that level of spending suggests they would need savings of about $1.35 million to retire.
That figure relates to how much they spend, however, and doesn’t include what portion of their post-retirement income would come from the Canada Pension Plan or Old Age Security.
Adrian Mastracci, a financial planner with KCM Wealth Management Inc. in Vancouver, says it’s important to take government benefits into account when considering how much a person will need to save.
If a family gets CPP and OAS at an average rate of 75 per cent, that would amount to $28,000 a year and make up a significant chunk of the income.
“The key is to figure out what the numbers are for you,” said Mastracci.
“Each family should look at the retirement projections for them. Once you know how much capital you need to get there, you can figure out how much you have to save and kind of returns you need — but you have to have that projection done for you first.”
Buttigieg agrees that not all responses in the BMO survey were based on hard numbers, saying some people would have been answering based on a figure they felt they should aim for rather than a real target.
But regardless of how they came to conclude their numbers, boomers surveyed were left with the idea that while they would like to retire, on average, when they turn 59, they felt they would need to work until the age of 63.
As a result, 71 per cent expected to take on a part-time job to earn extra income after they retire, while 44 per cent said they will sell off collectibles, antiques or possessions they no longer use.
About 32 per cent expected to sell their home, while another 19 per cent said they will rent out part of their home for additional income.
To Buttigieg, boomers’ ability to save may have been affected by the challenges associated with paying off a mortgage, helping children through university and caring for elderly parents.
Inflation, low returns, living a long life and health issues call also spoil retirement plans, according to Mastracci, but he says one of the biggest problems continues to be debt loads.
“A lot of retirees still have debts (and) they have to clear the deck,” he said.
A separate report from Equifax Canada last week found that seniors were borrowing money to finance their post-retirement lifestyles. Total consumer debt in Canada rose $77 billion, or 6.1 per cent, in the second quarter of 2013 from last year, and by 6.5 per cent among those 65 and over, the report said.
A poll commissioned by CIBC, meanwhile, found that many Canadian parents were delaying their retirement and taking on debt to help put their children through school.
The BMO results were based on an online survey of 291 pre-retirement boomers, defined as born between 1945 and 1964, conducted in the first week of August.