Do we have a retirement crisis on our hands?
I just watched Rob Carrick from the Globe and Mail interview Malcolm Hamilton, an actuary at Mercer talk about the retirement crisis in Canada.
Malcolm does not think there is a crisis despite the message that you hear constantly that no one is saving enough money for retirement. I really liked the message that Malcolm was sharing and I thought I would expand on some of the issues.
Lots of happy retirees
In the video Malcolm makes the point that despite the message, he has seen lots of happy retirees over his 30-year career. I’ve been in the business for 20 years and I welcome this statement with open arms because I see more people retire happy and successfully than not.
One of the misconceptions of retirement planning is that you need millions and millions of dollars to retire. For some that may be true but for many people, a happy and successful retirement can be achieved without millions. Although money is important, there is more to retirement planning than just focusing on the money. This holistic approach to retirement planning will help you to understand yourself and you may discover that you need less money for retirement than you might think.
Debt is a bigger problem than savings
Malcolm also makes the point that the bigger concern he has is the amount of debt that people, especially the younger generation is taking on. I could not agree more but I also think the older generation is also taking on more debt than before. Debt has become big business and it’s easier than ever to access debt and live beyond our means.
There’s no question that debt and savings are related. The more debt you have the harder it is to save money because debt requires payments.
One of the best ways to address saving for retirement is to simply manage and reduce debt. The best debt is no debt. Here’s a few articles on the importance of reducing debt:
Know where your retirement income is coming from
Before you buy into the theory that there is a retirement crisis in our country, you have to take the time to consider where your income will come from in retirement. When you retire, you will move to a multiple paycheque system. In other words, you are likely to get more than one source of paycheque in retirement. Despite some messages, you are likely to get Canada Pension Plan and Old Age Security. One third of Canadians will get a pension cheque. Others will get cheques from their savings including RRSPs, investments and maybe even the Tax Free Savings Accounts.
By understanding where retirement income comes from and how much you will get, you might find that you may need fewer saving than the messages you hear over and over again. Doing a little homework and planning may help you to reduce something I call retirement anxiety.
Do you have retirement anxiety?
Legitimately, there are more and more people who have a bad case of retirement anxiety because of fear of this retirement crisis. I recently wrote a guest post on Credit Cards Canada called “How to cure retirement anxiety?” In this article, I basically said the cure for retirement anxiety is to simple do some retirement planning. I was so impressed with the comments and the number of people who have started a retirement plan and agreed that knowing and planning for the future is the cure.
I understand that savings rates have dropped and debt has become a big hurdle to retirement success but at the same time, but retirement is about more than just money. Good planning, reducing debt, and saving money are all key components of a retirement plan and critical steps to avoiding a retirement crisis from happening in your life.