A report prepared by pension consultant Keith Horner for the Department of Finance suggests thatconcerns about Canadians under-saving for retirement may be overblown. Current proposals to boost retirement benefits could thus be misplaced.
The Horner studyfound nearly 70% of Canadian households were putting savings into RRSPs and company pension plans at rates sufficient enough to fully maintain consumption levels in retirement. Nearly 80% saved at rates sufficient enough to maintain 90% of retirement consumption. Many retirement planners believe only 70% of income needs to be replaced in retirement.
Such high saving rates may be a surprise for many. It was a surprise for Carleton University economics professor Frances Woolley: I read this and was stunned – if you’d asked me to guess the percentage of households that were saving enough for retirement, I would have given a number half the size of Horner’s estimates, or less.
Horner obtained his results by adjusting for distortions in savings rates calculated from National Account data. Moreover, his study found that Canadians, especially many low-income Canadians, dont need to save for retirement.
As Wooley explains: According to Horner, half of single-earner two-parent families have earnings below $40,000 per year. And even if they’re not saving at all, they’re saving enough. When they retire, Canada Pension Plan, Old Age Security and Guaranteed Income Supplement will provide a higher standard of living than they enjoy at present.
Horners study appears to provide an argument for not getting worried about low savings rates in RRSPs or the declining number of defined-benefit pension plans. Many persons in lower-income groups dont really need to save for retirement because current government programs will provide them with the same, or better, living standard in retirement.