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Most Canadians feel behind on retirement saving, new survey shows. Here’s what you can do

Click to play video: 'Out of pocket: Inflation forces B.C. mother to give up retirement saving'
Out of pocket: Inflation forces B.C. mother to give up retirement saving
WATCH: A B.C. mother says she has had to stop saving for retirement to cope with the rising cost of day-to-day expenses. Kylie Stanton has more in part two of Out of Pocket, a Global News special series on the cost of living, and its impact on Canadians. – Jan 17, 2023

Retirement is feeling increasingly out of reach for most Canadians with a year of decades-high inflation behind them and rumblings of a possible recession ahead, according to a new survey from BMO.

Canadians now believe they will need $1.7 million to retire, up 20 per cent from 2020’s figure of $1.4 million, the survey said. Yet fewer than half of those polled (44 per cent) said they’re “confident” they’ll have enough money to retire — a decline of 10 percentage points from 2020.

BMO’s report, released Tuesday, is based on an online poll conducted by Pollara Strategic Insights in November. It found that 74 per cent of the 1,500 Canadians surveyed are concerned about how current economic conditions such as inflation will affect their financial situation.

Nearly 60 per cent said they believe these factors will affect their confidence in meeting retirement goals.

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Caroline Dabu, BMO’s head of wealth distribution and advisory services, says the higher bar for retirement and declining confidence about reaching those goals reflects the toll the past year and a half has played on Canadians’ finances and their anxieties.

“That really is a reflection of Canadians saying: ‘I’m feeling the crunch,’” she says.

Personal finance expert Rubina Ahmed-Haq tells Global News that when the rising cost of living eats up household income, Canadians are prone to sacrificing savings goals.

“When more money is going towards paying your mortgage, paying for groceries, paying for everyday items, there’s less money left over for the long-term planning,” she says. “All of that sort of goes on the wayside when everything else is costing you so much more.”

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Putting retirement savings and investment plans on hold through one year can be “significant” to your overall trajectory, Ahmed-Haq says, especially when you’re young. Taking advantage of compounding interest on your contributions at a young age can be critical for reaching retirement goals 25 to 30 years down the road, she says.

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Ahmed-Haq notes that the longer your investment horizon is, the less affected your retirement savings will be by a single year — good or bad.

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“A year is not going to make or break anybody,” she says.

How to get back on track

Despite the majority of survey respondents indicating current economic conditions are affecting their approach to saving and investing, the average amount held in a Registered Retirement Savings Plan (RRSP) rose two per cent annually to $144,613 in 2022, according to BMO.

Roughly 43 per cent said they had already contributed to their RRSPs for the 2022 tax year, with a further 14 per cent saying they’d contribute before the March 1, 2023 deadline.

Ahmed-Haq says that if you’re not in a position financially to contribute as much as you’d typically like this year, there are strategies to keep your retirement savings on track.

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In the short term, try to put just enough money into your RRSP that will drop you into the next marginal tax bracket, Ahmed-Haq says. This way, you’ll be paying a lower tax rate with a reduced taxable income.

But rather than trying to put in a large lump sum in the next three weeks to hit your savings goals, she recommends taking whatever amount you’re short this year and breaking it up into digestible monthly payments over the next year or two.

An effective RRSP savings strategy does not typically involve a series of big, one-time contributions, Ahmed-Haq adds.

What’s important is “flexing that savings muscle” and staying in the habit of monthly contributions — even if those deposits are smaller than you’d like in a tough economic time.

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How much money do I need to retire?

The idea of a big retirement number has shifted over time — Ahmed-Haq says it used to be that Canadians could aim for $1 million to retire comfortably.

While inflation and other economic factors have driven that number higher over time, she adds that it’s also a very personal figure depending on how you want to live your retirement.

She recommends working with a financial adviser to figure out what savings goals are realistic for the kind of retirement you want: a quiet life in a downsized home, or a second property and plenty of travel.

Dabu agrees. She tells Global News that the first step for Canadians is to figure out their plan with a professional before trying to figure out if they’re behind schedule for retirement.

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While those just starting on their savings journey might have a longer horizon to account for rough years, those nearing retirement age might have some adjustments to make to either their investment plans or lifestyle expectations, she says.

“It may mean either adjusting your goal or maybe making a trade-off to be able to stay on that goal and stay on that savings trajectory that you had originally set out for yourself,” she says.

The hardships of the COVID-19 pandemic and the past year of inflation and rising interest rates should show Canadians the importance of not just having a plan but being able to “stress test” it against changing economic and market conditions, Dabu adds.

But again, Ahmed-Haq argues that when it comes to retirement, the means are often more important than the ends.

“Make it the target that every month, I’m going to put something away for my retirement and I’m going to invest it over the long term,” she says. “That will serve you better than trying to say, ‘I want to get to $1.7 million at some point.’”

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