Retirement confidence slipping

While Canadians are more confident about their ability to save for their retirement, pessimism has grown dramatically, according to a report by the BMO Retirement Institute.

Only 40% of Americans say they are confident about their retirement savings, compared to a majority of Canadians (60%). But 36% of Canadians say they are not confident, up from 18% just last year.

Tina Di Vito, head of the BMO Retirement Institute, ascribes this decline in confidence to several years of volatile markets of the past couple of years.

As to why we are more confident than out American cousins, Di Vito says a lot of that can be credited to differences in the two countries’ housing markets.

“The Canadian personal balance sheet is actually looking pretty good, but home ownership is difficult to translate into cashflow during the retirement years,” she says. “It’s not a liquid asset; it has to be sold or used as collateral for a loan. Neither option is going to guarantee success during retirement.”

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She points out that residential real estate may already be over-valued, and a correction down the road could destroy a retirement plan built around home equity.

One common issue on both sides of the border is that roughly half of survey respondents expect to work later in life than they had originally planned, due to insufficient retirement funds.

“Working longer seems to be the solution. Half of Americans and Canadians are saying they’re going to have to delay retirement to give themselves a few more years to accumulate some savings.”

She points out that the government is encouraging this shift, by raising the CPP benefit for people who put off claiming the pension until after the age of 65, while those who opt for earlier CPP payments face larger discounts to their benefits.

“We’ll have to wait and see what the impact will be,” she says.

She says it is vital for most Canadians to build a nest egg of financial assets, pointing out that an RRSP is an excellent vehicle for retirement saving. Canadians contributed $33.9 billion to their RRSPs in 2010, a mere drop in the bucket compared to the $650 billion in unused contribution space.

“We expect much the same for 2011 tax year contributions,” she says. “While all of this volatility has caused concern on both sides of the border, it is reassuring to know that Canadians are still saving for retirement by contributing to RSPs.”

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.