Retirement income gap to widen: CD Howe

One in six retirees are currently without the financial resources to replace three-quarters of their pre-retirement consumption, the amount often used as the basis of retirement planning.

That number is expected to increase to at least two in five over the next 40 years, according to a study released today by the C.D. Howe Institute.

The study, Canada’s Looming Retirement Challenge: Will Future Retirees Be Able to Maintain Their Living Standards upon Retirement?, highlights the differing retirement outlooks for Canadians of various age and socio-economic groups and focused on future retirees’ ability to maintain their pre-retirement consumption after they cease working, taking into account the diversity and variability of income, taxation, saving, employment and family situations over a lifetime.

“A key question in Canada’s pensions debate is whether Canadians will be able to maintain their living standards in retirement, and if policy needs to respond to the risk that some will experience painful declines,” said William Robson, president and CEO of the C.D. Howe Institute.

The study found that Canada’s retirement system has supported post-retirement consumption relatively well, especially for lower-income individuals and those who reached retirement age in the last 20 years. But if ongoing behavior and economic circumstances were to persist indefinitely, more Canadians may find maintaining their working-life consumption in retirement more difficult.

Only about 16% of recent retirees are in circumstances that imply a substantial reduction in consumption post-retirement, but the persistence of recent trends would raise this number over time to 44% of current 25- to 30-year-olds.

Policymakers need to assess how the retirement prospects of various groups would change in response to reforms that seek to mitigate that risk.

The full commentary is available here.