With the youngest baby boomers now aged 61, much of this generation is already retired or nearing retirement. However, data shows many have inadequate savings and, as a result, may struggle to maintain their standard of living. In fact, some boomers have saved so little that younger Canadians could surpass their savings benchmark with just a few years of disciplined saving and investing.
Here’s a closer look at the financial state of Canadian boomers — and what it takes to get ahead on the path to financial freedom.
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At the end of 2023, boomers over age 65 had an average registered retirement savings plan (RRSP) balance of $756,497, according to Statistics Canada (1). Many also hold other assets such as GICs, stocks, mutual funds and real estate. This put the average net worth of households for those aged 65 and over at just over $5.5M — or $5,659,172, to be precise (2).
This financial sum looks good, but it may fall short of recommended retirement benchmarks. Most Canadians believe they will need $1.54 million to retire comfortably according to survey data from BMO (3), and many are finding that their savings fall short.
Fidelity suggests retirees should aim for replacing 70% of their working income for the same standard of living in retirement (4). With the average annual income for Canadians aged 55 to 59 at $42,800 (5), the target is to save enough to earn approximately $29,960 per year (from interest, capital appreciation and dividend earnings). Assuming a retirement age of 65 and average life expectancy (6), men should look to save at least $419,440 and women to save at least $539,280 (in order to generate close to $30K per year in retirement income).
Despite these calculations, 61% of Canadians are afraid of running out of money during retirement, according to a survey from CPP Investments (7). With limited resources, many boomers may be forced to take on debt, rely heavily on their Canada Pension Plan (CPP) and Old Age Security (OAS), cut back their lifestyles, or even return to work.
This is tough news for those part of the boomer cohort. But if you’re not part of the boomer cohort, there’s still time to chart a different course.
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Whatever your personal “magic number” for retirement is you can achieve it if you start early and stay consistent. Start early enough and you’re well on your way to being financially ahead of where the average boomer stands today.
To appreciate the power of time and compounding savings, let’s examine how a 40-ish person can get ahead. According to Statistics Canada, the median salary for someone aged 40 to 59 hovers around $50,000 (8). Fidelity, a North American investment firm, recommends that by age 45 you should have a savings nest egg equivalent to four times your salary (9). To hit this milestone, Fidelity recommends saving at least 15% of your pre-tax income and investing these savings into a diversified portfolio focused on growth and income.
For example, if you earn $50,000 and consistently save 15% per year in a low-cost index fund like the TSX Composite — which has averaged about 7.94% annual returns since 1957 (10) — you could reach four times your income in about 14 years. Start saving that $7,500 per year when you’re 30 and by 44 you’d have four times your salary and still time to boost those retirement savings.
In short, consistency pays off — and you don’t need to be wealthy to build a secure retirement. If you want to reach your target even faster, you can increase your savings rate or grow your income over time.
— with files from Rebecca Holland
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Statistics Canada: Survey of Financial Security (1, 2); BMO: Retirement Survey: Over Three Quarters of Canadians Worry They Will Not Have Enough Retirement Savings Amid Inflation (3); Fidelity: How much Canadians have saved for retirement (4, 9); Statistics Canada: Income Explorer, 2021 Census (5, 8); Statistics Canada: Life expectancy at birth and at age 65 (6); CPP Investments: Canadians fear of running out of money in retirement (7); Questrade: What is the average rate of return of the stock market (10)
This article originally appeared on Money.ca under the title: Here’s how much the average working boomer has saved for retirement — are you already ahead?
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.