Retirement index shows weakening finances and quality of life in retirement years
Canada has declined in a global assessment of retiree wellbeing.
Based on 18 performance indicators of retiree welfare including material, financial services, health, and quality of life, the Natixis Investment Managers’ 2021 Global Retirement Index ranks Canada 10th among developed nations, down two places from a year ago.
Canadians are fearful that their retirement dreams are slipping away due to increased government debt, rising inflation, and persistently low interest rates.
Things are so concerning for 25% of respondents that they believe they need a miracle to save enough for a financially secure retirement. The average Canadian is saving 16% of their current income for retirement.
More than half say they need professional help with selecting investments in their workplace retirement plan and 46% don’t fully understand all the investments in their retirement savings plan.
Six in 10 investors say they would be motivated to invest more for retirement if they had access to investments that are more closely aligned with their priorities and values.
While two thirds of Canadians are confident that they will be able to retire with financial security, three quarters believe that rising public debt is likely to mean reduced public benefits for future retirees.
Inflation is seen as the biggest challenge for those saving for retirement (74% said this) along with healthcare costs eating up their savings (66%), while low interest rates are seen as a hinderance to generating a retirement income by 54%.
Almost 4 in 10 of respondents expect to stay working longer in life but almost as many are concerned that they won’t be able to stay employed as long as they want or need to.
Relying on public benefits
While most respondents recognise that they are increasingly responsible for making their own provisions for retirement income, almost half fear they will be unable to make ends meet with lower-than-expected public benefits. This is even an issue for 28% of high net respondents.
With the pandemic resulting in low rates and markets flooded with liquidity, ensuring good income in retirement with current low yields is a challenge.
“The challenge is compounded as retirees invest in riskier assets to generate the returns they need at a point in life when they may not have the time to recoup potential losses,” said Dave Goodsell, Executive Director, Natixis IM Center for Investor Insight. “Fortunately for today’s policy makers, low interest rates make debt more manageable. However, growing levels of public debt and the need to find budgetary solutions will force tough decisions about government spending, including public retirement benefits, raising taxes, raising the retirement age, and cutting benefits.”
Learn how raising the retirement age would benefit Canadians in this article.
Nearly eight in 10 (79%) Canadian investors believe that employers have a responsibility to help their employees achieve a financially secure retirement. Most would prefer to work for a company that has a retirement plan savings match.
Where Canada can improve
Canada scored in the top 20 across all four elements of the 2021 Global Retirement Index and held its 2020 position for health and material wellbeing.
However, it was weaker this year for finances in retirement, driven by lower scores in bank nonperforming loans, tax pressure, old-age dependency, interest rate and governance indicators.
Canada’s quality of life score also slipped due to happiness and environmental factors.
Iceland ranked top overall for the third consecutive year. Switzerland, Norway, Ireland, Netherlands, and New Zealand complete the top 5.
