One in two thinks it will take at least $1 million to make a comfortable retirement. But the vast majority of workers are light years away from achieving this goal. What’s wrong?
Big dreams, small cushions: the vast majority of people (76%) have amassed less than a quarter of the savings they think they need for retirement. This proportion is also up 2% from the average of the last three years.
That’s what came out of a survey released in September 2015 by the Canadian Payroll Association, an organization that defends the interests of employers and conducts this type of study every year.
One might think that the situation is improving as the moment comes to hang on his skates. Just over half of all workers aged 50 and over had not reached their retirement savings target. Yet, regardless of age, one in two respondents think they will need more than $ 1 million for their retirement.
How to explain this gap between dream and reality? Many people do not set their retirement goals on the basis of a serious analysis, but on rough estimates, says actuary Nathalie Bachand, founder of Groupe conseil Bachand Lafleur and president of the board of directors of the Institute Quebec Financial Planning Commission (IQPF).
“The majority of people have perceptions of their savings that are not accurate. They see retirement as a very distant horizon and are based on generalities. Either they are not saving enough, or they are worried about the prospect of running out of money in retirement. ”
A reasonable goal of retirement savings varies from one individual to another, adds the financial planner. To avoid dreaming in color, the best way to establish it is to examine your current needs. “Look how much it costs you to live now. Then, ask yourself what expenses may be added to retirement, such as travel or health expenses, which may disappear, such as mortgages. ”
At the Régie des rentes du Québec (QPP), we always advocate the use of the good old thumb rule to set the retirement savings target: to maintain his standard of living at retirement, the worker will need to approximately 70% of its gross annual revenues. “Of course, we have to adjust this rule according to salary and needs,” said Renaud Bourget, an actuary with the QPP. But it’s a starting point. The more we advance in life, the more we can specify the retirement goal. ”
Surprisingly, as life expectancy increases, a growing number of Quebeckers cash in the RRQ before age 65, while it is much more advantageous to wait a few years. In 1994, 69% did so; twenty years later, this proportion has risen to 85%. “We note that many people underestimate their life expectancy, says Pierre Turgeon, spokesman for the RRQ. But the reality is that people live old. ”
At a pay of the abyss
In addition, the Canadian Payroll Survey reveals that many Canadian workers live from paycheque to paycheck: almost half of them would struggle to meet their financial obligations if their paycheque was a week late. A quarter of them would not be able to shell out $ 2,000 if an emergency occurred.
Which is not surprising Ashley. Advertisements condition us to quantify expenses in monthly or even weekly terms, according to her. “Many people are looking at their paycheck saying: $ 20 more a month for this new home theater, it fits my budget. The reality is different. Before you plan for retirement, you have to finance the unexpected. ”
Add to that the increase in life expectancy, the economic downturn and the erosion of retirement plans, and you have the recipe for the time bomb, she concludes.