We are often being accused of borrowing too much, spending too much, saving too little, retiring to soon and living too long. Could this all be true?
According to research done by C.D. Howe Institute, the Canadian household savings rate has declined from 20% in 1980 to 5% today and fewer than 35% of Ontario workers participate in a workplace pension plan. The rising level of household in Canada is a looming concern, especially when:
Roughly 1 in 5 mortgage indebted households have less than $5,000 in financial assets to draw upon in response to a loss of income or to an increase in interest rate. What’s more alarming is 1 in 10 mortgage-indebted households have less than $1,500 in financial assets to address any shock.
Many Canadians believe relying on the Canada Pension Plan (CPP) and Old Age Security Benefits (OAS) will be enough during retirement and they won’t need to save on their own. However, the maximum benefits you can receive under CPP is $1,092.50 each month assuming retirement age is at 65, which is equivalent to $13,110 per year and maximum benefits under OAS is $570.52, equivalent to $6,848.24. For a total of $19,956.24, hardly enough to cover everyday living expenses.
With Canada’s aging population and rising life expectancy, it is putting stress on public finances. The number of recipients of OAS is expected to almost double over the next 20 years, which raises the question of whether OAS will even be there when someone in their 30’s today retire.
The reality is that for many Canadians, taking control of their finances is a challenge and many are not prepared for what the future may bring. Many are vulnerable if interest rates go up, or if the economy goes down, and these changes will bring real impacts on people’s personal finances. Work with your financial planner to create a savings / buffer plan to better prepare and protect yourself against negative economic changes.