The Real Reason Canadians Fail to Save Enough for Retirement

The Real Reason Canadians Fail to Save Enough for Retirement

While there are conflicting opinions on whether Canadians are saving enough for retirement, there is no doubt Canadians are not saving like they used to save. In fact, the household saving rate in Canada just fell dramatically to 0.8 per cent in the third quarter of 2018 from 3.4 per cent in the previous quarter.

The household saving rate since 1981 has averaged 7.3 per cent, and the annual saving rate has not gone negative since 1933. As interest rates continue to normalize and we enter our tenth year since the last recession, it may be that 2019 is an unprecedented year in the history of Canadian saving (or lack thereof).

According to the National Bureau of Economic Research (NBER), procrastination may not be the biggest impediment to saving enough. In fact, they found that it was the unavoidable, or at least, less avoidable risks that may be the real reason Canadians haven’t saved enough for retirement. The primary negative shocks identified by researchers included divorce, unemployment and health.

It is interesting to see the rising debt by major cities in Canada:

average household debt by city
The most rational way to plan for retirement may therefore be to plan for the worst, hope for the best, and insure against the risks that you can. If you are lucky enough to avoid unforeseen financial shocks like unemployment, health problems, or divorce, you can retire young and spend more in retirement.

If you’re looking for a credit counsellor in Toronto, get a quick assessment with us today or call us at 416.900.2324. We will help you develop a plan, reduce your interest costs and get out of debt over time.