Achieving a comfortable replacement ratio with the right toolkit

Retirement planning in Canada has become increasingly challenging, especially for those who do not participate in a defined-benefit pension plan. In a recent Globe & Mail article titled "How hard is it to save enough to retire at age 60?" the author argues that benefits should exceed 50% of an individual's final average pay, calculated based on their earnings over the five years before retiring. For Canadians, achieving such a replacement ratio - the retirement income needed to maintain lifestyle as a percentage of pre-retirement income - can be a daunting task, even when factoring in benefits from the Canada Pension Plan (CPP).

As shown in the article, maximizing RRSP contributions by putting aside 18% of income over a 30-year period, results in slightly over 40% of final average pay. However, public servants enrolled in the Public Service Pension Plan (PSPP) fare much better, achieving replacement ratios above 70% with a savings rate of just 9% over the same 30-year period (excluding the Old Age Security pension). 

The reality is that a significant portion of private sector workers do not have access to supplementary employer pensions and must fund their retirement beyond CPP benefits. This situation understandably leads to anxiety and concern when it comes to retirement planning. Financial literacy and effective communication may not be enough to eliminate the problem but they can certainly contribute to alleviating the burden on individuals and the government. 

Imagine if individuals had access to digital tools that allowed them to run various retirement scenarios tailored to their unique circumstances. Such interactive tools would take into account variables such as the individual's earnings, savings rate, retirement age, life expectancy, rates of return, and fees. The result? Empowered individuals who can make well-informed decisions to improve their financial situations and work toward a more secure retirement. 

At Pensionbar, we're actively working on making this a reality! Building digital tools provides individuals with the means to assess their unique circumstances, plan accordingly and empower them to take charge of their financial future.