Rising inflation and interest rates are threatening Canadians’ retirement security, and millennials are the most worried about saving for retirement, especially since buying a home to be their nest egg is no longer feasible for many, according to a survey released today.
“We’ve been polling Canadians for the last four years to better understand how they’re feeling about retirement security,” Ivana Zanardo, vice-president of plan operations for the Healthcare of Ontario Pension Plan (HOOPP), told Wealth Professional before releasing the 2022 Canadian Retirement Survey.
“Concerns have been high each year that we’ve done the survey, but they seem to be exacerbated these days by rising interest rates and inflation. But this specific research told us there is a generational divide that housing and selling a home to fund retirement is looking less feasible for younger Canadians. It would have been a strategy that my parents, their friends, and perhaps some of my friends used, but it’s no longer viable for the younger Canadians, aged 18 to 34.”
The survey showed that 62% of the 1,716 Canadian adults that HOOPP and Abacus Data surveyed in late April were most concerned about affording daily living costs. But, 53% of those surveyed said they’re struggling to save for retirement. 32% said they haven’t saved anything for retirement yet, while 38% said they haven’t saved anything for retirement in the past year.
Nearly half (45%) of the Canadians surveyed said they’re also planning to rely on selling their home to set themselves up for retirement, but that plan is becoming increasingly risky. Besides concerns about current housing affordability, 58% of the non-homeowners were worried that the rising interest rates would impact their ability to buy a home. Just as many of those who had a home were worried whether they’ll be able to sell their homes and reap those funds when they retire.
“Inflation and housing affordability is a concern for all Canadians, but predominantly those under the age of 35,” said Zanardo. “They’re growing increasingly concerned about the day to day cost of living impacting their ability to save for retirement.”
She noted that employees are looking to their employers for help to save for retirement, so HOOPP’s solution is for more employers to develop better workplace retirement plans. Its earlier research showed that two-thirds of people would be willing to receive a lower salary to have a pension. Its employer research also showed that 80% of those surveyed believe that companies have a responsibility to offer a pension plan, which HOOPP notes would be good for business.
“The bottom line is that we know that better pensions help businesses attract and retain talent,” said Zanardo, noting that could give companies an edge in this competitive labour market.
But, while HOOPP said the defined benefit pension plan is still the gold standard for Canadians’ pensions, Zanardo said financial advisors could help to educate their clients about the value that a pension plan can provide and help them make informed decisions about retirement investments.
“Helping clients to understand the implications of taking their money out of a plan would be a great step forward,” she said.
Zanardo said she’s seeing this issue herself as she has three grown sons who have started careers.
“They’re worried about meeting their day to day expenses, so saving for retirement really feels like a luxury to them when it should not be,” she said. So, she’s reinforcing the message of “save early and save often” because the earlier they start, the more they can benefit from compound interest.