Average clients needs 11 times their final pay to retire
The latest research from professional services firm, AON plc shows that the average Canadian worker will need to accumulate 10.9 times their final pay in order to maintain the same spendable income after retirement, or risk lowering their standard of living to make up for the savings shortfall.
According to the research, on average, Canadian employees need to have 16 per cent of their annual pay going into workplace and personal retirement savings every year, starting at age 25. In the absence of personal savings, they say Canadians would need to delay retirement until age 70 to be financially ready to retire and maintain the same net available income after retirement, or lower their standard of living by 30 per cent to make up for the shortfall.
They add that younger workers have even higher retirement savings needs than the average Canadian, as they will likely need to provide for a longer decumulation period due to increasing life expectancy, and higher medical costs which generally increase faster than salaries.
AON defines retirement income adequacy as having the same spendable income after retirement as before, taking into account changes in savings, taxes, medical expenses and other factors. They add that Canadian employees have clear expectations that employers should provide increased support for their overall financial wellbeing.
“The retirement readiness gap is real for Canadian workers” says AON’s senior partner and Canadian director of retirement solutions, William da Silva. “This is an opportunity for employers to ask the right questions: Are contribution levels appropriate and designed in alignment with the plan sponsor’s objectives? Are employees equipped with resources to manage their finances and plan for their retirement? Do employers understand the impacts of medical cost inflation and other post-retirement expenses? Clearly there’s a need to look at both the substance of workplace retirement programs and at the ‘soft’ levers of education and information.”