More than four-fifths (84%) of working households in Canada aged 25 to 64 would be financially prepared for retirement if their intended retirement age and saving strategies are realized, according to a retirement readiness report released by HEC Montreal’s Retirement and Savings Institute in May.
The report defines financial preparedness as households that can replace at least 65% of their net income in retirement after taxes, transfers, savings and debt payments, or for households in the lowest income quintile, 80%.
The report’s authors take into account both private and public sources of retirement income, with the latter being most important to middle and low-income groups, they note.
There has been little change to retirement preparedness since a previous study using pre-pandemic data from 2018. The most recent study uses 2022 data. Only 18% of households have less than an 80% chance of being prepared.
Prepared households are more likely to have a defined benefit pension plan, earn lower income and expect to retire later.
Those without defined benefit pensions and without savings have much lower retirement readiness scores. If the generosity of defined benefits pensions decreased by 20%, the number of households that are financially prepared for retirement would drop slightly to 82%, the report said. “In the next decades, it is possible that coverage and generosity of DB pensions will be eroded.”
Households most at risk of being unprepared have higher than median income and no savings, with a 52% chance of being prepared for retirement. On the flip side, those earning below the median income who also have no savings have an 89% chance of being prepared.