Canadians, like Americans, struggle with retirement savings despite differing social security systems
As one approaches retirement or has already entered this milestone, it is natural to wonder how their savings compare to other parts of the world.
A Forbes survey shows that over half of Americans are dissatisfied with their retirement savings. This raises the question of whether the US is unique in this dissatisfaction or if countries like Canada face similar challenges, as reported by Nasdaq.
Canada, often compared to the US due to its similar economy and cost of living, provides an interesting point of comparison. However, differences in retirement savings and social security systems exist between the two countries.
The Canada Pension Plan (CPP) and the US Social Security system both provide retirement, disability, and survivor benefits, but the payments and benefits differ. The US pays higher maximum benefits and averages more, but Canada offers lower taxes on social security and additional benefits.
Canada’s smaller population and pension plans offered by individual businesses also provide an advantage, unlike in the US, where such plans are rare. Canada’s tax rate on social security is 4.95 percent, compared to 6.2 percent in the US.
To understand how satisfied Canadians are with their retirement savings, GOBankingRates used sources from the Federal Reserve’s Survey of Consumer Finances, Spring Financial, The Motley Fool Canada, Investopedia, Social Security Administration, and ChatGPT.
Average Retirement Savings in Canada
According to Ratehub, Canadians over 65 have around $129,000 in their Registered Retirement Savings Plan (RRSP). Including Tax-Free Savings Accounts (TFSAs), the figure rises to $160,000. On average, a Canadian retiree has $319,000 in total retirement savings.
This amount varies based on individual circumstances and financial planning.
Average and Median Retirement Savings by Age
Data from the Federal Reserve’s Survey of Consumer Finances and other sources, including ChatGPT, provide the following breakdown:
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Under 35: Average Savings: $49,130; Median Savings: $18,880
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Ages 35-44: Average Savings: $141,520; Median Savings: $45,000
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Ages 45-54: Average Savings: $313,220; Median Savings: $115,000
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Ages 55-64: Average Savings: $537,560; Median Savings: $185,000
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Ages 65-74: Average Savings: $609,230; Median Savings: $200,000
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Ages 75 and Older: Average Savings: $462,410; Median Savings: $130,000
Importance of Saving for Retirement
Retirement savings ensure financial security. Government benefits like CPP and Old Age Security (OAS) provide some income but are often insufficient. In 2022, the average CPP monthly amount was $702.77, with a maximum of $1,253.59.
The maximum OAS monthly amount was $642.25, providing an annual income of about $22,750, which is typically insufficient for most retirees.
Strategies to Boost Retirement Savings
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Start Early: Begin saving early to benefit from compound interest.
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Maximize Contributions: Use RRSP and TFSA contribution limits to reduce taxable income and grow savings tax-free.
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Employer Contributions: Maximize employer pension plans or matching contributions.
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Diversify Investments: Spread investments across various asset classes to manage risk and improve returns.
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Automate Savings: Set up automatic transfers to retirement accounts for consistent contributions.
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Seek Professional Advice: Consult a financial advisor for a personalized retirement plan.
Many Canadians find their savings inadequate. An April AARP survey found 31 percent of adults saving for retirement are unsure if they will have enough, and 33 percent believe they will not have enough.
