Running out of time

Creating positive change in light of Canada’s retirement challenge

What does one need for a worry-free retirement? Property ownership, financial freedom, reliable health care? For the next generation of retirees, all three may feel like impossibilities. Canadians are facing greater hurdles than ever when it comes to post-work planning—everything from rising living costs to their lack of retirement preparation could paint a bleak picture. However, the solutions are not out of sight. Together, employers, financial services firms, and government organizations have the power to innovate retirement as we know it, making the transition from employment a more seamless one.

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Canada’s retirement challenge

As Canada’s population continues to grow, so does its retirement demographic. But, with nearly three million households set to retire over the next decade, current retirement planning systems are not equipped to handle this weight. In fact, our findings show that 55% of near-retiree households will have to make lifestyle compromises to avoid outliving their financial savings. And retirement savings growth has stagnated, widening the retirement readiness gap and increasing financial vulnerability.

With a proper understanding of the current agitators, public and private sector organizations can come together to address the roadblocks Canadians face in reaching their retirement goals and to pave a holistic path forward for future generations.

Together, we can make a difference by building on Canada’s long history of innovation.

Retirement disruptors

Our research shows that financial hardship isn’t the only factor defining Canada’s retirement gap. A shortage of adequate retirement advice, the rising costs of living, and a lack of financial literacy have made preparing for a comfortable retirement a challenge for many Canadian households.

Individuals nearing retirement might be feeling uncertain or even anxious. If the current trends persist, they may outlive their financial savings. Understanding the factors contributing to this is vital in paving the way forward. Let’s explore:

Households aren’t saving enough
For many people in Canada, saving for retirement has become an ever-present worry. Confusion and misunderstanding around how—and how much—they should save for a comfortable retirement has overshadowed the excitement around post-work life.

Retirement costs are rising—and fast
As Canadians are living longer than anticipated, retirees must tailor their retirement plans to accommodate more years of living and the associated complications, such as higher health-related costs. And retirees are shouldering more debt in today’s inflationary environment, increasing the risk of emotional burnout and outliving retirement savings.

Near-retirement advice is inaccessible or inadequate
High-quality retirement planning isn’t easy to come by, especially for those in need. Though Canada’s population is growing, today’s in-retirement strategies are stuck in the past and exclude the most vulnerable from a comfortable, stress-free retirement.

Charting Canada’s near-retiree landscape

To create effective solutions that cater to the needs of the soon-to-retire, a deep understanding of their retirement readiness is crucial. Our research examined Canada's near-retiree households and categorized them into four segments based on their household assets and expected retirement lifestyle. Here’s what that revealed:

Focus on retirement readiness

Foster better retirement planning

To tackle the retirement challenge, financial institutions and government policies must challenge conventional thinking, embrace innovation, and prioritize human-centred products and services for all. Preemptively encouraging Canadians to adopt healthy saving habits will help minimize anxiety for those preparing for retirement.

How can industry stakeholders help incentivize Canadians of all ages to build healthy saving habits as early as possible?

• Bring retirement planning closer to the workplace
• Create incentive programs focused on cultivating healthy savings behaviour
• Consider making pension plan contributions mandatory

Empower those nearing retirement

Approaching retirement should be an exciting time—and helping more Canadians get financially prepared can make it so. By assessing people’s readiness for retirement, financial institutions and government services can pave the way to a more financially empowered future for near-retirees. And the journey to financial freedom in post-work life starts with knowing where to begin.

How can industry stakeholders improve the quality and accessibility of near-retirement advice?

• Establish simplified and easily accessible retirement readiness checks to help near-retirees contextualize their preparedness and address any gaps in their retirement plans
• Create data-driven, holistic near-retirement planning offerings
• Implement a cross-sector, data-sharing framework to provide customers with a holistic view of their assets and liabilities
• Develop retirement income products that increase the degree of certainty on retirement cash flows
• Adopt tranched risk management strategies to extend the longevity of retirement savings
• Address the emotional friction surrounding home equity release products and increase their supply in the market
• Convert private sector pension plans to the public sector model

Offer robust support for retirees

Even retired people have opportunities to adopt innovative strategies for living a comfortable life post-work. Seeking guidance on a more empowered, retired life is only the beginning. Financial service firms and government entities can help lift their burdens by tackling the retirement challenge head-on.

How can industry stakeholders help retirees deal with rising costs by improving their cash-flow management?

• Navigate retiree eligibility for the Guaranteed Income Supplement and Old Age Security Pension
• Encourage unlocking cash flow from home equity (e.g., through reverse mortgages)
• Work together to devise a tax-efficient withdrawal strategy at an accessible rate
• Evaluate health insurance options to cover health emergencies and long-term care costs

All players in the retirement ecosystem have the duty to help Canadians fill their golden years with confidence rather than anxiety.

Explore more in our full report.

Financial empowerment unlocked

Saving for retirement is a long journey and in today’s volatile market, confidence and preparedness levels for the golden years are low. Acknowledging this retirement readiness gap is only the first step. By acting now, the public and private sectors can help boost Canadians’ retirement readiness to prepare them for what lies ahead. It’s time to confront Canada’s retirement challenge and help create a more prosperous financial future for all.