Are you ready to retire?

The Government of Canada took a look at this question and came up with some interesting facts in a study published here. Below are some interesting points raised but for the entire study follow the link.

In 2014, two-thirds of individuals aged 25 to 34 reported that they were financially preparing for retirement. This proportion was higher among those aged 35 and over (81% to 84%). Younger individuals were also less likely to know how much they needed to save. These results are expected given that retirement may be a distant notion for individuals in that age group.

Retirement preparation varies by level of education. About 61% of individuals who did not have a high school diploma reported preparing for retirement. This compared with 86% among those with a university degree. The comparable proportions for those with a high school diploma/some postsecondary education and a postsecondary certificate or diploma were 71% and 81%, respectively. Also, 54% of university degree holders knew how much to save compared with 43% of those who never completed high school.

The level of household income is also associated with retirement preparation. About 57% of individuals in the lowest household income quintile stated that they were financially preparing for retirement. This compared with 94% among those in the top income quintile. Furthermore, 63% of individuals in the top income quintile knew how much to save compared with 37% in the bottom quintile. One reason for these results could be that the incentive to save might not be as strong for those in the lowest income quintile given the fact that the public pension system helps individuals in this quintile to maintain a similar living standard in their retirement years.

Recent immigrants (those who arrived in Canada during the period 10 years prior to the survey) were less likely to be preparing for retirement (65%) compared with established immigrants (75%) and the Canadian-born (79%). They were also less likely to know how much to save. Other groups that were more likely to be preparing for retirement included couples with dependent children (82%) and couples without dependent children (81%) compared with unattached individuals (74%), lone parents (69%) and individuals belonging to “other” family types (57%); paid employees (81%) compared with the self-employed (72%) and the unemployed (63%); and homeowners without a mortgage (86%) compared with owners with a mortgage (81%) and renters (67%). Residents of the Prairies were also more likely than other Canadians to be preparing for retirement.

Respondents who stated that they were financially preparing for retirement were asked to list the sources of revenue that were included in their financial plan for retirement. The two most common sources were government pensions and Registered Retirement Savings Plans (RRSPs). In 2014, around 80% of labour force participants expected both to be a source of revenue in retirement (Chart 1), while 60% listed workplace pensions.

There is a small number of people (about 20%) who expect to fund retirement from inheritance. There are risks to incorporating an expected inheritance into a retirement plan without considering all possible scenarios (e.g., a smaller inheritance than expected). In 2006, a study showed that about 1.5 million Canadians were relying on their inheritance as the primary source of capital to fund their retirement. The report stated that, on average, Canadians expected to receive a total of $150,600 in cash or cash equivalents, and $151,200 in non-cash inheritance. But in reality, inheritance sums received were significantly less – the average inheritance received that year was $56,000.