Canadians now expect to need $1.7M in order to retire, finds survey

Canadians now believe they need $1.7 million in savings in order to retire, a 20% increase from 2020, according to a new BMO survey.

The eye-watering figure is the largest sum since BMO first started surveying Canadians about their retirement expectations 13 years ago. It’s also a drastic increase from the $1.4 million in savings Canadians expected to need for their nest eggs just two years ago.

The results reflect Canadians’ concerns about current economic conditions, particularly inflation and higher prices, said Caroline Dabu, head of wealth distribution and advisory services for BMO Financial Group.

“If you look at the average Canadian, they’re feeling the rising inflation costs,” Dabu said.

“And so, not surprisingly, we are seeing that Canadians are feeling they absolutely will need more to retire.”

Canada’s annual inflation rate hit a four-decade high of 8.1% in the summer of 2022 and has since fallen to 6.3% in December. BMO Economics expects the country’s CPI to decline to around 3% by the end of the year.

The sharp increase to Canada’s inflation rate in 2022 exceeded wage gains, eroding purchasing power for most families and heightening fears about the future. The BMO survey found that just 44% of Canadians are confident they will have enough money to retire as planned — a 10% decrease from 2020.

But while the $1.7 million figure may sound overwhelming to working-age Canadians, Dabu said the number says more about the economic mood of the country than it does about real-life retirement necessities.

“Certainly when we’re working with clients, we find that many overestimate the number that they need to retire,” she said.

“It really does have to be taken at an individual level, because circumstances are very different … But $1.7 million, I would say, is high.”

While rising inflation may require tweaks to a retirement plan — such as contributing slightly more to savings each month if you’re a young worker, or making cash flow adjustments if you’re nearing the end of your working career — Dabu said these changes don’t necessarily have to be drastic.

When it comes to retirement planning, Dabu said, knowledge is power. By working with a professional financial advisor and making a plan that encompasses individual circumstances and goals, Canadians can come up with their own retirement savings number.

“In the survey, we note that 53% of Canadians didn’t know how much they will need to retire,” Dabu said.

“That increased confidence comes from knowing the exact number that I need to save for, and how I’m going to get there.”

A separate survey from TD Bank Group showed that volatile markets are interfering with Canadians’ saving habits. More than half of respondents (56%) said they’re focused on getting through the next year rather than on their future financial security.

As we enter RRSP season, 59% said they didn’t contribute to any investments last year, and 62% said the market is too risky for them to invest right now.

A recent Financial Services Regulatory Authority of Ontario poll also found most people need more encouragement to save for retirement. According to the survey, 78% of respondents immediately signed up for their workplace’s pension plan, and only 64% contributed the maximum amount eligible for matching.

The BMO survey found millennial and gen-Z Canadians are the most nervous about their ability to save and invest right now. However, all age groups — 74% of survey respondents — said they are concerned about how current economic conditions will affect their financial situation, and 59% said economic conditions have affected their confidence in meeting their retirement goals.

The BMO survey was conducted between Nov. 4-7, 2022 by Pollara Strategic Insights via an online survey of 1,500. Online surveys can’t be assigned a margin of error because they don’t randomly sample the population.