Canadians Underestimating Cost of Retirement

January 30, 2014 ( – Nearly all Canadians plan to rely on government retirement provisions to support themselves during retirement, a recent study shows.

BMO Financial Group’s “Registered Retirement Savings Plan (RRSP) Study” finds that almost 90% of Canadian workers plan to rely on either the Canada Pension Plan (CPP) or the Quebec Pension Plan (QPP) to cover living costs during retirement. Almost one-third (31%) report they plan to rely heavily on the CPP or QPP, despite the fact that the average monthly payout is less than $600.

“Given the amount that the CPP or QPP pays out, Canadians should not rely on them as a primary source of income to fund their retirement,” says Chris Buttigieg, senior manager for wealth planning strategy at BMO Financial Group, based in Toronto. “They should consider the CPP and QPP to be a supplementary component of their overall retirement income solution and focus on creating their very own ‘personal pension plan’ by contributing to an RRSP on a regular basis.”

Buttigieg notes that even for those who can count on a workplace pension to help fund their retirement, the landscape is changing. “Not only are there fewer of us covered by workplace pensions, but there’s also a shift happening from defined benefit plans—which specify the fixed pension amount an employee will receive upon retirement—to a defined contribution (DC) model where retirement income depends on how much is saved and how the contributions are invested. In a DC plan, there’s no guarantee of the amount you will receive in retirement.”

He also observes that even if someone is part of a workplace DC plan, they still need to ensure that contributions are invested according to risk tolerance, time horizon and retirement objectives. Buttigieg says that it makes sense to diversify retirement investments, and to identify and build up other sources of retirement income.

The study also identified sources of income, outside of the CPP and QPP, that Canadians plan to use to fund their retirement. These include:

  • Personal savings, such as RRSPs, TFSAs, etc. (88%);
  • Part-time jobs (59%);
  • Sale of home or property (49%);
  • Inheritance (40%);
  • Hoping to win the lottery (34%, with 14% relying heavily on this possibility); and
  • Support from family and/or children (28%).

“To those hoping to win the lottery to fund their retirement, the odds of actually winning are approximately 1 in 14 million. A much better bet would be to develop a personal retirement savings and investing plan, then start contributing as early and as often as possible to your RRSP,” concludes Buttigieg.

More information on Canadians saving for retirement is available here.