Canadians in for a retirement shock: study

By Steven Lamb | October 23, 2007 | Last updated on October 23, 2007
4 min read

Canadians are setting themselves up for a huge pay cut when they retire, replacing only half of their pre-retirement income, according to a study by Fidelity Investments Canada.

The report marks the launch of the fund company’s new Fidelity Retirement Index.

“The Fidelity Retirement Index is the new definitive standard Canadians can use to measure how prepared we are for retirement,” said Peter Drake, vice-president, economic and retirement research, Fidelity Investments. “It provides a clear answer to the number one question Canadians have about retirement: Will I have enough?”

Fidelity says the index analyzes the broad financial picture of Canadian households, including workplace and individual savings, projected asset growth, future savings, projected government sources of income and pension benefits, expected retirement horizon and longevity.

The conventional wisdom on retirement is that people will spend far less on costs associated with their jobs, such as transportation, clothing and dining out. Many financial plans use these assumptions and focus on generating post-retirement income anywhere between 50% and 70% of working income.

But Drake says few Canadians are prepared to sit at home and do nothing after they retire and that they will require up to 80% of their pre-retirement income.

“Many retirees are not planning to cut back on their lifestyles in retirement,” said Drake. “Instead, Canadians are retiring earlier, living longer and leading more active lives in retirement than ever before. Unfortunately, a 50% retirement income replacement rate shows that most Canadians aren’t financially prepared for the full life they are looking for in retirement.”

The Fidelity survey found that 59% of Canadians plan to work at least part-time in their retirement to supplement their income from pensions and government benefits.

Willingness to work in retirement was strongest in Manitoba and Saskatchewan, where 69% of respondents said they would keep their noses to the grindstone. Atlantic Canadians were also willing to work, with 62% of respondents planning on it.

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  • Only 26% said they planned to sell their current home to fund retirement, while 28% said they were counting on receiving an inheritance.

    Real estate values have soared in recent years in many urban centres, but not all residents are looking to cash out of their abodes to fund retirement. Only 24% of Toronto residents said they planned on selling, compared to 38% of Vancouver residents and 39% of Calgarians.

    “While many individuals will have other sources of income for retirement, it is important not to view post-retirement employment, home equity and inheritances as substitutes for planning and saving for retirement,” said Drake.

    The survey found that 36% are already thinking their expected retirement income will not be enough to maintain their pre-retirement lifestyle.

    There is very little difference across the country, with provincial results straying from the overall average by a maximum of only five percentage points. Quebec residents appear to be the best prepared, expecting to replace 53% of their income, on average.

    “While they are slightly ahead of the rest of the country, without changes in their financial plans, they are still likely to experience significant reductions in their planned retirement lifestyle,” said Drake.

    Albertans were at the other end of the scale, expecting to replace only 45% of their working income. It should be noted that Albertans currently enjoy some of the highest income levels due to labour shortages generated by oil sands development projects.

    People from Atlantic Canada are on track to replace 52% of their income, matching residents of Manitoba and Saskatchewan. Ontarians can expect to hit the national average of 50%, while British Columbians say they will replace only 47% of their working income.

    According to the survey, Ontarians had the highest total household savings at $21,000, as well as the highest anticipated annual defined benefit pension income, at $24,000.

    Matters are not a whole lot better in other developed countries. The national average for the U.K. is just 50%, while the Japanese may replace only 47%. Americans and Germans expect to do a bit better, though, replacing up to 58% and 56%, respectively.

    “None of us has absolute certainty about what the future might hold. However, you don’t have to be an expert on the future to save for it,” added Drake. “Canadians are not planning to slow down in retirement and nor should their income.”

    Fidelity has also rolled out a new tool for advisors to use with their clients. The Retirement Readiness SnapShot calculator is available online at

    Filed by Steven Lamb,,


    Steven Lamb