By Peter Ciscione, MEROLAND MEDIA GROUP
In Aesop’s fable The Ant and the Grasshopper, the industrious ant stores food for the winter, while the carefree grasshopper spends the summer singing away.
When the winter arrives, and the cold weather hits, the hungry grasshopper must ask the ant for food.
It may be just a cautionary tale, but for many Canadians who don’t put enough money away for retirement, it could soon become a reality.
According to a Sun Life Financial survey, one quarter of Canadians do not know, or have not given any thought to where their retirement income will come from.
“There is actually a lot of help out there. It’s just a matter of reaching out to a financial institution and asking questions,” said Cindy Crean, managing director of private clients for Sun Life Global Investments.
Retirement savings experts suggest that individuals require 50-70 per cent of their pre-retirement income to maintain their standard of living in retirement.
What’s the best way to do that? Start early is the common refrain: A 21-year-old investing a modest $100 a month into an RRSP at 5 per cent return can earn close to $200,000 by age 65.
Though those in their 20s may not have much money for investments, between paying off school debts and covering the rent, this is a crucial decade to start developing good saving habits, said Crean.
And, as people progress into their 30s and 40s, she said, it’s important to stay the course and continue to save.
“People in their 30s are not necessarily thinking about retirement,” Crean said. “They should be, but they are probably just thinking about raising their kids, educating them and paying down their mortgage and maybe take a holiday.”
But no matter how tight the budget, the most important rule to investing for retirement is to, well, just do it.
“Everyone should be doing something,” said Crean, stressing that sitting down with a financial advisor can “help you rest easy at night.
“If you have $2,000 to put away I think most people would look at that and say, ‘That’s not very much. Should I even be bothering to do it?’” she said. “I would say yes, absolutely.”
For most people, though, investing for retirement depends on a lot of variables.
“If you’re a teacher and you have a defined benefit pension plan that has indexing that is going to provide you with a pretty decent income at retirement, you may not need as much money in the bank to augment or complement that income,” Crean explained.
“Other individuals without a pension will need a significant amount of money in RRSPs (and other investments) to generate the kind of income required at retirement.”
One recent study, however, says the situation is not so dire, as Aesop’s tale fails to take into account the grasshopper’s ability to depend on a social safety net.
A study released by the Fraser Institute in late April argues there is no retirement income crisis in Canada.
The study, titled The Reality of Retirement Income in Canada, notes that focusing exclusively on the traditional pillars of the pension system like Old Age Security, CPP/QPP, and voluntary pensions such as RRSPs, overlooks trillions of dollars in assets held by Canadians. Those assets are held in the form of home equity and other savings and largely undocumented support from family and friends.
Other research paints a different picture on people’s retirement plans.
BMO Financial Group in March released a report that suggests most Canadians plan to depend on the CPP after their working lives.
The survey showed 90 per cent will look to the CPP in retirement, while 88 per cent will bank on RRSP savings.
Close to 60 per cent will hold a part-time job to fund retirement while 49 per cent plan to sell their homes.
Thirty-four per cent responded they are hoping on a lottery win to get through their golden years.
But those tasked with overseeing Canada’s pension distribution say expecting the government to make up the difference in poor saving is a risk. Most Ontarians currently earn about $9,000 annually from CPP and Old Age Security with the average monthly payout less than $600.
With a tsunami of retirees flowing through the system in the next 20 years, government officials anticipate a burden on social programs as more people rely solely on CPP.
Asked to pinpoint the cause for the pension crunch, Ontario Finance Minister Charles Sousa pointed to a lack of education and lack of opportunity for investment as key culprits.
“About 50 per cent of the population doesn’t have a private pension plan. A lot of people aren’t utilizing the room in their RRSPs. There is about $600 million in RRSP room still available,” Sousa said. “All this has an impact, ultimately, on our social costs in future because many are going to retire now on CPP alone and that is not going to be enough.”
Backed by various organizations calling for action, the Liberal Government in Ontario, with NDP support, set out on introducing reforms to supplement the CPP.
“We want to provide more opportunities, more choice and more availability for residents to supplement their pension,” Sousa said.
Regardless of whether a pension crisis exists or not, financial experts like former CFL player Chuck Ealey, who became a financial director with Investors Group after retiring from the game, argue creating a nest egg for retirement should be a priority for everyone.
“Nobody plans to fail,” said Ealey. “But people just fail to plan.”
