Canadian Study Finds Major Retirement Readiness Problem

December 20, 2010 ( – The number of Canadians whose savings won't be enough to replace at least three-quarters of their pre-retirement income will triple over the next 40 years if current trends continue.

A Toronto Sun news story said that was the conclusion of a C.D. Howe Institute study that asserted that about 45% of workers currently between ages 25-30 will not meet the 75% replacement threshold – nearly 30% higher than those who retired in the past five years.

The C.D. Howe Institute study used a Statistics Canada simulation tool, called LifePaths, to project consumption before and after retirement. The Sun said the data indicated that by 2046 one-in-five newly retired seniors in the lowest income brackets won’t be able to replace three-quarters of their earnings. For the top 20% of wage earners that figure will rise to 50% for those retiring in 2025 and jump to 70% by 2050, according to the study.

“Our results point to an often claimed – but up to now largely unsubstantiated – problem,” the Institute said. “The level of retirement preparedness of a large number of working Canadians, particularly in the younger generations, exposes them to a significant risk of lower living standards in retirement.”

According to the news account, the projected earnings shortfall is likely to affect wage earners of all levels, including those in the lowest income brackets – a different conclusion than reached in previous reports. The earlier studies have assumed lower wage earners are unlikely to see a retirement income drop as their needs are covered by the Canada Pension Plan and Old Age Security.

The Sun said Finance Minister Jim Flaherty proposed that a privately-run pooled savings vehicle be introduced to help cover Canadians who do not have access to a company-sponsored pension plan.

The study report is at