While you don’t need an expert to tell you that it is important to save and reduce debt to prepare for retirement years, it appears that Canadians have all but ignored these basic financial security rules.
The Survey of Financial Security (SFS) conducted by Statistics Canada showed that more Canadian senior citizens are now in debt compared to previous years.
The SFS survey revealed that 70.2% of Canadians in the 55-65 age group had debt in 2012 – significantly more than the 60.9% reported in 1999.
Similarly, more Canadians aged 65 and above reported that they are still paying off loans – 42.5% in 2012 compared to 27.4% in 1999.
Vanier Institute’s Current State of Canadian Family Finances: 2011–2012 report indicated an increase in the number of insolvencies for those in the 55-64 and 65+ age brackets.
“The insolvency rate for those aged 55–64 and 65+ has been on a consistent upward trend over the last two decades. The rate of insolvencies among 55- to 64-year-olds jumped by almost 600% over the period, while the rate for those aged 65+ soared by 1747%. Seniors were 17 times more likely to become insolvent in 2010 than they were in 1990,” the report noted.
Canadians in these age groups are also paying on more debts than before, as shown below:
| 1999 | 2012 | |
| Mortgages | 7.7% | 12.1% |
| Other lines of credit (tripled!) | 4.7% | 14.0% |
| Vehicle loans | 6.2% | 15.5% |
| Credit card/installment loans | 15.1% | 21.4% |
Canadians noted that they were having a difficult time preparing for retirement because of the high cost of living, according to a report by HSBC.
The Future of Retirement report by HSBC shows that 25% of the respondents in their study said they were not preparing for their retirement mainly because of the expensive daily cost of living.
But advocates in both the private and public sectors are urging Canadians to prepare for retirement by making use of private savings accounts and the Registered Retirement Savings Plan or RRSP.
As a rule, financial experts recommend that individuals should save anywhere from 10% to 18% of their gross income. Putting the savings in an RRSP account will allow the asset to accumulate free of tax until it is time to withdraw the funds many years later, at which time the individual is likely to face lower taxes.
Although Prime Minister Stephen Harper may have refused to enhance the Canada Pension Plan benefits, various jurisdictions in Canada are looking at different means to help Canadians prepare for their retirement. Ontario, for example, is set to implement the Ontario Retirement Pension Plan where workers earning $45,000 per year would see a deduction of $788 annually for their retirement fund.