Opinion

Retirement savings realities

Many retirement savings options exist for today’s employees. Adequately utilized, these programs can assure future retirees of a very comfortable lifestyle in their golden years.

The problem is not the lack of savings mechanisms. Rather, it is our propensity to spend what we earn, and sometimes even more, rather than to save and grow our investments.

RRSP and TFSA programs are invaluable, tax-efficient vehicles available to all of us. Unfortunately, they have yet to be utilized to anywhere near their full potential by many Canadians.

There is that fortunate minority of employees — primarily in the public sector — who can look forward to their significant future pension from a defined-benefit pension plan. With only about 21 per cent of Canada’s employees currently members of such plans, this proportion is rapidly shrinking, as employers, even in the public sector, show an accelerating tendency to move to much less costly defined-contribution plans.

Currently, another 17 per cent of the workforce belong to a defined-contribution plan. They too, are assured of a meaningful retirement fund to draw on once they retire.

Unfortunately, this leaves about 62 per cent of today’s employees with no workplace pension of any kind upon which to rely. To supplement future CPP and OAS payments, they must rely solely on their own resources — doggedly saving and prudently investing during their working years. Too often, the saving discipline is simply not there.

It is instructive to note that almost all workplace pension plans require an automatic employee contribution to their plan. That contribution often ranges from five to eight per cent of gross income. These employees must manage their living expenses on the remaining 92 to 95 per cent of their incomes. Most manage to do so quite well.

Those who do not have this automatic discipline imposed on them at work, must find the willpower to impose it on themselves. This is easier said than done. If initiated with that first full-time pay cheque, the savings can become just as automatic and effective.

We also accept being forced to pay a small proportion of our incomes into CPP, which will eventually generate a fully-indexed pension payment as early as age 60. It is clear that the savings vehicles which help us the most in our retirement are those that have been imposed upon us by either an employer or government.

In a previous article, I explored the features of the federal government’s proposed Pooled Registered Pension Plan. Because no provincial government has as yet passed the necessary enabling legislation, it has yet to see the light of day. Many provinces are instead pushing for an expansion of contributions and benefits of the current CPP program — a mandatory means of boosting the retirement income of future retirees.

Unfortunately, it is a solution which would force not only each employee to contribute more, but also the employer. In these rather tepid economic times, such increases for employers risk further weakening the economy.

Waiting for government to impose a savings discipline on us is surely not the answer.

The solution lies within ourselves — by slightly shifting our spending priorities during our working years. If not lucky enough to be enrolled in a workplace pension plan, we must recognize that setting aside five to 10 per cent of our income over some four decades of employment is a small price to pay for a very comfortable retirement which could last almost as long.

If we ignore our personal responsibilities, we really should not expect governments to force a solution on us, nor to further increase the generous benefits Canadian retirees already enjoy.

With a rapidly increasing proportion of seniors, relative to working Canadians, both today’s and future taxpayers face an already increasing financial burden. It is not reasonable for today’s workers to expect their retirement comfort to be funded by future taxpayers — especially when existing RRSP and TFSA programs provide an ample framework for them to secure their own comfortable retirement.

A retired corporate executive, enjoying post-retirement as a financial consultant, Peter Dolezal is the author of three books. His most recent, The Smart Canadian Wealth-Builder, is now available at Tanner’s Books, and in other bookstores.

 

 

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