Personal Finance

The magic number for retirement savings is $756,000, according to poll of Canadians

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  • Aug 25th, 2018 6:29 pm
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Apr 27, 2015
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The magic number for retirement savings is $756,000, according to poll of Canadians

Interesting article in Financial post
Three quarters of a million dollars is the magic number Canadians think they will need to save for retirement, according to a CIBC survey being released today.

Well, $756,000 to be precise.

But while that is the average amount individual Canadians believe they’ll need to amass, up to 90 per cent don’t have a formal plan on how to get there. A majority (53 per cent) aren’t sure whether they’re saving enough, but 37 per cent haven’t even thought about retirement, or if they have say they just can’t save.

And it’s worse for women: only 22 per cent have a formal retirement plan or even a good idea of how much income they’ll need, versus 32 per cent of men. Even on the cusp of retirement, by age 55, 43 per cent of women and 27 per cent of men lack a plan.

”I’d love to think they’re thinking about it but that’s the opportunity the poll suggests: Canadians should invest time in this,” said Jennifer Hubbard, Managing Director of CIBC Planning and Advice.


Perhaps it’s skewed by youth, but I was amazed that almost one in five Canadians (17%) “haven’t thought about retirement.”

The data is all individual, not addressed to couples but it’s well nigh impossible to plan for something you haven’t even begun to think about it. As they say, failing to plan is planning to fail.

Unfortunately, few individuals are close to accumulating even a significant fraction of that $756,000. On average, Canadians have saved $184,000, a figure that’s higher than I might have expected, given the abysmal retirement savings levels south of the border. (According to the Economic Policy Institute, almost half of U.S. families have no savings at all, the median amount is US$5,000 and the median for U.S. families with savings is just US$60,000.)

Many Canadians count on the Canada Pension Plan, Old Age Security and (for those with no other resources) the Guaranteed Income Supplement. Some will depend almost entirely on Ottawa because 30 per cent of the 1,523 adults CIBC polled online (randomly) in mid-January have saved nothing at all, while another 19 per cent have under $50,000. The ongoing decline of employer-sponsored Defined Benefit pensions makes CPP and OAS a lifeline, so it’s fortunate that younger people will benefit from a CPP that’s being gradually expanded.

With life expectancies rising, it strikes me as optimistic that the average age Canadians hope to retire is 63, although Hubbard wasn’t surprised by that figure.

Perhaps because they have a longer time horizon, younger investors expect they’ll need to amass more than those already within hailing distance of retirement. Millennials aged 18 to 34 believe they’ll need $917,000, versus $842,000 for Generation X members aged 35 to 54. And Baby Boomers aged 55 or older told CIBC they will need just $518,000.

The real message buried in these statistics is that people need to get more engaged in planning what they want their future to look like

Even among those on the cusp of retirement (including older Gen Xers aged 45 to 54 and Boomers up to age 64) 32 per cent have saved nothing. Drilling down on those who have saved, the average is just $345,000, while 49 per cent have saved under $250,000.

The traditional recommendation for those in this situation is to work longer, save more and to scale down lifestyle expectations. But as Hubbard observes, “It’s less about how much you’ve saved, but how your savings line up — or don’t line up — with your lifestyle goals that really matters.”

Depending on who you talk to, how much you need to retire ranges from nothing at all to well over $2 million. At the bottom end of the scale, one expert who didn’t wish to be named said a senior couple can live a no-frills basic lifestyle solely on $38,000 a year from CPP and OAS. Higher-income individuals with DB pensions may need to “replace” just 50 per cent of their work incomes once they retire, provided they’re mortgage free, have launched the children and no longer have to save for retirement itself.

Certified financial planner and Boomer & Echo blogger Marie Engen agrees low-income seniors who seek only a basic level of retirement income don’t have to save; however, she estimates a middle-class retirement ($42,000 to $72,000 annual joint income) will require a nest egg between $250,000 and $1 million, which is where most of the CIBC subjects polled seem to be.

It’s the “deluxe” retirement aiming for $100,000 of joint annual income that requires the big bucks: in the absence of DB pensions, Engen estimates a couple needs $2.2 million to generate such a high-end lifestyle. While 6 per cent told CIBC they’d need $2 million only 1 per cent have saved that much. And while 14 per cent think they’ll need between $1 million and $2 million, only 2 per cent have saved that much. (26 per cent don’t know.)

Doug Dahmer, founder of Burlington-based Retirement Navigator and BetterMoneyChoices.com, puts the $756,000 figure into perspective.

“Assessing if this is enough money is the equivalent of answering the question ‘Am I going to be OK?’ without defining what OK looks like. The real message buried in these statistics is that people need to get more engaged in planning what they want their future to look like.”

Jonathan Chevreau is founder of the Financial Independence Hub, author of Findependence Day and coauthor of Victory Lap Retirement. He can be reached at jonathan@findependencehub.com.
What do you think? Share your thoughts
NDP for Unions, PC for people. Only PC can save Ontario.
218 replies
Jr. Member
Jan 16, 2009
161 posts
84 upvotes
If an 18 year old threw $5500 into their TFSA each year for 40 years at a compounded return of 6% they would have over $950,000 by the time they are 58 year old.

Mind you I know student loans are a bitch, but after they are taken care of if they focused solely on their TFSA until they are 65 they would be able to enjoy CPP, OAS, and a million dollar tax free savings account.

Unfortunately millennials come in two different breeds these days (I am a millennial BTW).

1. Those that will move anywhere in the country for work at a a chance at prosperity. I find these to be maritimers, Newfoundlanders, and those from rural areas of provinces.

2. The City dwellers who will never move from Van, Toronto, etc. but will bitch and complain about how unfair life is.

I was talking to a former classmate of mine who currently lives in Vancouver. She complains about the cost of living and I don't blame her, Van is expensive. I told her about an opportunity in Calgary. Doing what she currently does she would make a 20% increase in pay and cost of living in Calgs is a fraction of Van (mostly talking about rent). Her response, "Un no thank you, I'd never move to Alberta."

:facepalm:
Member
Apr 2, 2016
314 posts
143 upvotes
Goes to show how financially illiterate most Canadians are. $700,000 is not going to be a lot of money in 20-30 years.
Deal Addict
Jan 21, 2014
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mbm2018ca wrote:
Aug 11th, 2018 3:59 pm
Do you really need a lot of money in your 70s?
If you are not well and must stay in those retirement places, they are freaking expensive
Sr. Member
Oct 22, 2015
970 posts
247 upvotes
Some people rely strictly on government retirement homes. They are not the best quality but luckily Canada does have them.
Sr. Member
Jul 19, 2007
816 posts
126 upvotes
BrianWS6 wrote:
Aug 11th, 2018 3:32 pm
Goes to show how financially illiterate most Canadians are. $700,000 is not going to be a lot of money in 20-30 years.
A million will only be worth $500k in 30 years.

So even selling those million dollar houses won't give you that much,
Deal Addict
Feb 26, 2008
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BrianWS6 wrote:
Aug 11th, 2018 3:32 pm
Goes to show how financially illiterate most Canadians are. $700,000 is not going to be a lot of money in 20-30 years.

Why would you come to that conclusion? The question might have been, "How much would a retiree need today" or it might have been, "How much will you need when you eventually retire?"

For a retiree today, $750k might be adequate. OAS pays $7,200 per year. The max CPP is $13,500 per year. Safe withdrawal rate theory suggests that you can withdraw 4% of your portfolio over a 30 year period without exhausting your capital, so 4% x $750k = $30k/year. All in, that's a shade better than $50k/year, pre-tax. That's enough for a large percentage of Canadians.
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User avatar
Aug 3, 2009
1757 posts
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Nova Scotia
I hope CPP and OAS can handle this load or I guess entitled millennials will be supporting boomers and genx. So not only a harder start at working life but also good chance of less money available for retirement.
Member
Apr 2, 2016
314 posts
143 upvotes
kneevase wrote:
Aug 11th, 2018 5:17 pm
Why would you come to that conclusion? The question might have been, "How much would a retiree need today" or it might have been, "How much will you need when you eventually retire?"

For a retiree today, $750k might be adequate. OAS pays $7,200 per year. The max CPP is $13,500 per year. Safe withdrawal rate theory suggests that you can withdraw 4% of your portfolio over a 30 year period without exhausting your capital, so 4% x $750k = $30k/year. All in, that's a shade better than $50k/year, pre-tax. That's enough for a large percentage of Canadians.
You aren't factoring in inflation or income tax. Retiring on 30k a year today is going to end up being a miserable existence unless you die soon or pick up and leave for a 3rd world country. I would not bank on CPP or OAS being around in another 20-30 years either.
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Feb 26, 2008
1821 posts
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BrianWS6 wrote:
Aug 11th, 2018 5:27 pm
You aren't factoring in inflation or income tax. Retiring on 30k a year today is going to end up being a miserable existence unless you die soon or pick up and leave for a 3rd world country. I would not bank on CPP or OAS being around in another 20-30 years either.

What inflation? OAS and CPP are CPI-adjusted, and safe withdrawal theory lets you take a 4% inflation adjusted withdrawal from your portfolio for up to 30 years.

Why would you assume that CPP and OAS will not be here in 30 years? That's nothing but an old wives' tale. CPP is adequately funded and OAS is a small portion of the federal budget.
Deal Fanatic
Jul 10, 2003
6975 posts
1376 upvotes
jsn23 wrote:
Aug 11th, 2018 2:55 pm
If an 18 year old threw $5500 into their TFSA each year for 40 years at a compounded return of 6% they would have over $950,000 by the time they are 58 year old.

Mind you I know student loans are a bitch, but after they are taken care of if they focused solely on their TFSA until they are 65 they would be able to enjoy CPP, OAS, and a million dollar tax free savings account.

Unfortunately millennials come in two different breeds these days (I am a millennial BTW).

1. Those that will move anywhere in the country for work at a a chance at prosperity. I find these to be maritimers, Newfoundlanders, and those from rural areas of provinces.

2. The City dwellers who will never move from Van, Toronto, etc. but will bitch and complain about how unfair life is.

I was talking to a former classmate of mine who currently lives in Vancouver. She complains about the cost of living and I don't blame her, Van is expensive. I told her about an opportunity in Calgary. Doing what she currently does she would make a 20% increase in pay and cost of living in Calgs is a fraction of Van (mostly talking about rent). Her response, "Un no thank you, I'd never move to Alberta."

:facepalm:
I fall into category 2, but will easily have a million dollars and a pension by the time I retire, even if I never save money again. I lived cheaply in Toronto between 25 and 30 and saved $125,000. Now I'm going to move into a luxury rental building downtown because it doesn't matter if I spend my entire paycheque going forward.
Deal Fanatic
Feb 9, 2009
6656 posts
3760 upvotes
wra45mon wrote:
Aug 11th, 2018 4:19 pm
Some people rely strictly on government retirement homes. They are not the best quality but luckily Canada does have them.
Actually they are quite nice and not that much worse than private ones as I work in the healthcare industry and seen some of the public care services
Deal Fanatic
Feb 9, 2009
6656 posts
3760 upvotes
People fail to realize in Canada as a senior you get everything taken care off — it’s not they put you in the ghetto or social housing... senior independent public houses and full care are quite nice. Not to mention almost every medication you ever need is free after 65.

People save far more money than they need too — I was in this camp too but being in the healthcare industry the #1 thing people tell me when lying on their death bed is that they experienced more in life and didn’t cheap out of every single thing. You live once, balance between saving and spending.
Last edited by Sanyo on Aug 11th, 2018 11:48 pm, edited 2 times in total.

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