Is life getting more expensive than retirement savings?

Retirement savings are the obvious reduction for families struggling to stay financially centered while interest rates are rising and inflation continues to burn more income.

The Canadian Retirement Survey 2022 by the Ontario Pension Plan (HOOPP) highlights the current precariousness of retirement savings. Nearly four in ten workers have not saved money for retirement in the past year, and 72 percent said saving for retirement is too expensive.

Talk of Canada on the verge of a retirement rescue crisis has been around for decades. Between rising rates and inflation, have we finally arrived? Is life getting more expensive than retirement savings?

It sure looks that way for many people in mid-2022. In the HOOPP survey, 32 percent of 1,716 respondents described themselves as lagging behind in their standard of living and 63 percent agreed they would have to postpone their retirement date if inflation continued to rise. One in four said they would not have the money to save if the cost of living rose.

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Many people are in a short-term affordability emergency situation right now. They need money to cover the increasing cost of mortgages, groceries, gas, and so much more that goes into the family’s daily life. Saving for future events like retirement seems like an unaffordable luxury.

If financial stress is an issue in your family, take a retirement savings break for 2022 through 2023 if you need it. But eventually, you’ll need to get back on track. If a large number of people are unable to do so, then surely we have a retirement crisis in the making.

The effect of inflation on retirement savings appears to be a problem in the near term in that higher interest rates will eventually bring prices down to pre-pandemic levels of around 2 per cent. But a lot of the things we buy regularly may never go down in price. Only wage increases above inflation will help people move forward and they are rare. Average wage increases are roughly half the rate of inflation.

Higher prices can increase expenditures in family finances for years. With a fixed rate mortgage, you book your higher day payments for whatever term you choose. From this perspective, an old five-year fixed-rate mortgage doesn’t look great.

Also, higher mortgage costs make homes less expensive to buy, which in itself is a retirement problem. A home does not in any way guarantee a financially secured retirement. But if you own one, you have valuable assets to sell in order to free up money for retirement costs such as care provided through home services or nursing homes.

In the HOOPP survey, 75 percent of non-homeowners under the age of 35 were concerned that higher interest rates would prevent them from being given a home, and 75 percent of owners in that age group were concerned about their ability to afford current or future payments. .

The irony of today’s retirement savings challenge is that now is the best time to invest money long-term. Both stocks and bonds are down well, which means from a retail perspective that they are both underpriced and for sale. Adding money to a diversified portfolio in semi-monthly, monthly or quarterly installments over the next 12 months can work very well for 12 years and more into the future.

The retirement crisis, if it did indeed occur, would not announce itself. We will only see this in the increasing numbers of seniors working for income rather than fulfillment, in contrast to the impressive progress that has been made in reducing poverty among older adults and in rising costs to the federal government through the Guaranteed Income Supplement payments to low-income seniors.

A return to normal inflation levels and an interest rate reversal would help avert this crisis, but we have the broader affordability problem to contend with in the form of lifestyle inflation. Marketing and social media are fueling the hunger to own and do more. Finding the “enough point” in our lives is becoming more and more difficult.

Quantitative improvements have been made in retirement savings in recent decades, including some great investment products available at costs that can be pretty close to negligible. The next challenge is to get people to use it more.

More pensions in the workplace would help, too. Is there a better health benefit for an employer to offer than a financially secure retirement?


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