Canadians Need To Save At Least Nine Percent Of Income For Comfortable Retirement

Posted by Alan Zunec on Monday, February 18th, 2013 at 2:53pm.

Canadians have benefited from the stock market being more profitable and have nicely increased their household wealth. But economists are still concerned that most are only targeting three to four percent of their earning towards retirement. The suggested percentage is nine percent, which would help most people reach their retirement and other financial goals.

Chief Economist Douglas Porter, from BMO Capital Markets made this assessment after studying the stock market trends and then the saving patterns of the average Canadian. Porter did note that raising interest rates would help those saving money but that is not a viable option, at least not at the moment.

Porter also looked at the debt ratio, which right now sits at 165 percent of the average disposable income. He did note that financial assets are doing better, now sitting at 453 percent of that same disposable income. Porter believes that number was even higher during 2012’s fourth quarter, perhaps bettering the 454 percent seen in 2007 prior to the recession.

Looking at net assets to income, which was at 285 percent in the third quarter of 2012. It is lower than what was seen before the recession but the figure is higher than the ten year average. Porter notes this is a sign that finances in Canadian households are improving.

More households are investing in higher risk opportunities, such as high-yield bonds and equities, and are finding this tactic beneficial. This trend has increased household wealth to near record numbers, but still does nothing to bridge the gap left behind by low numbers in savings accounts.

Porter noted that the target for retirement savings should be 18 times what future retirees consider their preferred retirement income. That is on top of monies paid by the Canadian Pension Plan and/or Old Age Security. This would make a comfortable retirement feasible.  CPP usually replaces about 25 percent of pre-retirement income. To come up with the expected 60 percent of pre-retirement income, that additional 35 percent must come from other sources. But Porter also noted that each case is different.

A recent Household Savings Report put out by BMO noted that the average that Canadians were planning to save this year is $9,859.

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