I love Canada. It’s a great place and consistently ranks as one of the best countries in the world to live. Despite all its positives of free health care and many social programs, the fact still remains that collecting government assistance in your retired years is not enough to live on. Many people in the past might have been privileged enough to have defined pension plans that would pay a retiree a salary after many years of service. Unfortunately, in more recent times, the abolishment of these retirement pensions means that a secure income doesn’t exist any more for the current generation of workers. The onus now is on the individual, not the government, not the employer, to fund his or her own retirement.
The Canadian Pension Plan, though very successful over the last few years in building reserves, only manages to provide a paltry sum of $1038.33 per month as the maximum amount. The average Canadian can expect a payment of only $607.33 per month. Considering the cost of living in some of the most expensive cities in Canada such as Calgary, Toronto or Vancouver to be extremely high and it’s not a stretch to think that the pension would not even cover property taxes and maintenance fees on homes. The small amount of money provided by the government may seem like a shock to many. Some people may be expecting the government to be taking care of their financial needs when retirement comes, but as the figures show this isn’t the case.
The Canadian government also provides an Old Age Security payment that supplements the pension plan. This supplementary income is handed out to seniors, but can only be to up to a maximum of $563.74 per month. With that extra income, that just might be enough to cover the utilities and cell phone bill at the end of the month. The total subsidy provided by the government of $1160 a month is quite pathetic. It’s no wonder that a large majority of Canadians will be in a financial bind if there are no personal savings to draw upon.
The parents of many working class Canadians never had to deal with the problem of saving for retirement. Defined pensions were very popular in the past and many will retire with income closely matching their working years. What worked well in the past, will probably not work for the future. It’s probably more important than ever for individuals to be financially savvy and to know the basics of personal finance.
The Savings Rate
Despite the fact that the government is not providing enough money for the necessities of life in retirement, many Canadians have been ignoring their future financial responsibilities and saving very little. The average household savings rate for the 2nd quarter of 2014 was a paltry 3.9% (Statistics Canada). For historical purposes this is quite low. Compare that to the 80’s when the savings rate was in the upper to middle teens and you can understand why Canadians are more inclined to spend their money today than they were in the past.
Make It A Habit
Saving is a habit. Just as David Chilton wrote about in the “Wealthy Barber“, pay yourself first. Follow the rule of saving 10% of your paycheque and you will already be better than the average Canadian. 10% isn’t a lot and it still provides you with enough spending money to enjoy yourself. It’s amazing how little you will miss the 10% once you get in the habit of putting it away.
Saving early will at least give you a fighting chance to maintain your standard of living once the retirement years come around, but it by no means guarantees success. Just as this blog has mentioned many times before, saving is the first step, but creating a balanced diversified portfolio should be the second step. Make your savings work for you, so that you won’t have to work in the future.