Are Canadians Saving Enough?

Scattered across the mainstream media was a story on retirement planning in Canada. The question: are Canadians saving enough for their retirement. The answer: no.

This is news?

The media story was based on a report, sponsored by the Canadian Institute of Actuaries. You can download the pdf report here. And some doom and gloom stories covered by the mainstream media can be found here, here and here.

The report asks some basic questions about whether a person, 40 years old or over, is saving enough for retirement. According to the report, two thirds of Canadians are not.

However, reading through the report is very confusing. Assumptions are made without clearly specifying data. For example, modeling of investment returns followed the projected yield curve for Government of Canada bonds adjusted for low and moderate inflation. The report does not mention the assumed rate of return or the impact of inflation.

Looking at the Bank of Canada website here, I suspect that the report used an interest rate of about 4.7%. Factor inflation between 2 and 3% and little wonder most Canadians won’t make it.

Look at one of the scare diagrams below. I have no idea how someone on the Average Wage Index of $40,000 per year can save 20% of their pre-tax income for retirement. Looks like WalMart will have a large labour pool of senior citizens.