Employers should do more to help workers achieve financial security
Canadian employers should be doing more to help their workers achieve greater financial security to ensure they are on track for a dignified retirement, says the inaugural Mercer Retirement Readiness Barometer released Feb. 24.
Mercer says that “although retirement readiness varies from generation to generation, the Barometer is clear: Canadians need to begin to adopt a less conservative investment approach, maximize participation and gain greater access for personal savings through their workplace.”
If they don’t, they risk leaving money on the table, and being forced to retire later – or not at all, warns Mercer.
Defined contribution plans
Defined contribution plans are a critical source of retirement security for Canadians of all ages, but if they don’t take on an appropriate level of risk with the proper investment mix, “Canadians will find it difficult to achieve the level of asset growth they will need to build their nest eggs and retire comfortably.”
Mercer’s analytics show that Millennials are not saving at the rate they will need to in order to retire.
The company gave a prototypical example of a millennial, aged 28, with current annual earnings of $45,000 and with a total combined company and employer contribution of 6% to a workplace retirement program. This person will be retirement ready at age 70, if they are invested in a short-term investment, such as a money market fund.
“In contrast, the same millennial who takes a long-term perspective by investing their workplace program money in a healthy mix of equities and bonds will be able shave off three years and retire sooner at age 67 – just by making a better investment decision today,” says Mercer.
Savings rates are also critical for achieving financial security. “The Barometer shows that a savings rate any lower than 6% total annual company and employer contribution means that retirement may be altogether impossible for a millennial.”
Mercer says employers can help its employees from all generations better prepare for retirement through innovative and less traditional approaches, such as “allowing access to employee savings that promote debt re-payment, while the company contributes towards retirement, access to personal savings accounts through the workplace and guidance to prepare employees as they approach retirement.”