Retirement Readiness: For Most Canadians, It’s Happening As It Should

An Overview Of The Summary Report On Retirement Income Adequacy Research

Jack M. Mintz, Research Director and Palmer Chair in Public Policy, School of Public Policy, The University of Calgary released a summary of research undertaken for the Research Working Group on Retirement Income Adequacy on December 18, 2009, which confirms that overall, the Canadian retirement income system is performing well, providing Canadians with an adequate standard of living upon retirement.

Amongst the findings in the report, it appears that Canada has one of the lowest poverty rates among elders in the OECD coutries, and that our public pension system, that is, OAS/GIS, CPP/QPP and provincial top-up programs are ensuring that low-income Canadians are able to achieve high income replacement rates, even exceeding 100 percent.

Tax-assisted saving accounts as well as transfers and pension programs have otherwise provided an adequate retirement income at all income levels for the majority of Canadians. However, the report suggests that retirement income adequacy depends not only on saving but also on the investment performance of retirement funds, and that in fact Canadians may not be well served in the retirement marketplace by their financial advisors. (See Role of Financial Intermediaries, below).

Based on recent studies, Baker and Milligan (2009) provide evidence suggesting as a rough rule of thumb that 60 percent replacement levels of pre-tax incomes are adequate to maintain expenditures. Yet:

• Low-income Canadians need a higher level of replacement income to avoid poverty.
• Some middle- and high-income Canadians may need even less than 60 percent of their pre-retirement income to sustain an adequate standard of living (for example, the OECD suggests 50 percent for individuals with incomes over $90,000 in Canada, twice the median).
• Much depends upon individual circumstances that affect personal consumption levels, including the need to support dependants, health requirements and the cost of housing and other basic necessities.

Join us next week for a discussion on the Role of Financial Intermediaries.

Educational Resources: Now is a good time to look at retirement income plans, family succession and estate plans in an attempt to better understand financial needs for a future which could certainly include tax increases on both income and capital. To learn more consider the following Educational Resources available from The Knowledge Bureau:

► Tax Efficient Retirement Income Planning

► Master Your Retirement

► Master Your Taxes

► Tax Efficient Investment Income Planning

► Master Your Real Wealth

► Master Your Investment in the Family Business