Retirement planners in the United States have grown accustomed in recent years to reading about America’s growing ‘retirement crisis.’
Turn your attention to our neighbors to the north, and it’s often a similar message. But Canadians are wrong to think they face the same lack of preparedness as Americans, says a major new retirement study. Instead, the message should be one of ‘retirement readiness,’ it claims.
Oh, Canada! What are your citizens doing so right that makes retirement something not to be feared?
In turns out there are two things in particular, said Fabrice Morin, principal at McKinsey & Co., which has just published the results of its study “Building on Canada’s Strong Retirement Readiness” report. One is taking full participation in required retirement pension plans, and the other is enjoying the benefits of government-sponsored healthcare. While the latter is not a viable option for the U.S., American employers and employees alike can learn a lot from the former.
Misery Loves Company
Despite the above differences in the two retirement populations, the McKinsey report acknowledges that the typical Canadian probably has the same misgivings about leaving the workforce as their American counterpart.
“Demographic shifts and rising life expectancy have created a common perception among Canadians that they face a retirement crisis, and that millions will be forced to significantly lower their standard of living when they leave the workforce,” according to the study introduction. “Yet McKinsey’s latest research on the subject shows that a strong majority of Canadian households are actually on track to maintain their standard of living in retirement.”
A strong majority indeed. Illustrating how different retirement preparedness is in Canada versus the U.S., Morin says 83 percent of Canadians are on track to maintain their standard of living in retirement. The study is based on a survey of 12,000 households. Compare that to virtually any retirement preparedness study in the U.S., which collectively agree that most Americans have saved little toward their retirement.
The Healthcare Factor
Morin said that government-sponsored healthcare is obviously a major factor in why Canadians face fewer financial worries in retirement. After all, healthcare costs typically increase for an individual as they move through the retirement period, and reach the highest levels in the last years of life.
With that financial uncertainty largely removed from the equation, the average Canadian retiree can better budget for their expenses.
But the study also looks at how Canadians are responding to improvements in the economy with retirement savings and what lessons can be learned from that.
“This is the second time we’ve done this,” Morin said of the study. “We did it four or five years ago. We’ve done it again quite recently to better understand a number of dimensions, and to see how the situation is evolving with the market showing better performance.”
The Retirement Savings Plan Divide
The key findings of the study are, as in the U.S., that the level of retirement preparedness varies widely among Canadian households, and the great divide is retirement savings plans.
“Fortunately in Canada we have some universal programs that provide a pretty good level of consumption expenditure replacement for the lower income portion of the population,” Morin said. “These programs are equivalent to Social Security in the U.S., but also there is a supplement to that for the very low income retiree.”