Canadians struggle to save for retirement during economic challenges

Workplace retirement savings plans become more important as retirement saving takes a backseat for cash-strapped Canadians

Canadians struggle to save for retirement during economic challenges

Retirement has taken a backseat for Canadians as they deal with increasing costs from inflation, interest rates, and soaring housing prices, says a report from Sun Life.

The ‘2023 Designed for Savings Report,’ which used data from 1.4 million Sun Life group retirement plan members, says members who are mid-career are having difficulty saving for the future. The largest decreases in average contributions were among those in their thirties and forties which dropped 7%. This was followed by members in their fifties at 5%. As well, 25% of members are not taking full advantage of their employer matching program.

There also continues to be a gap in contributions by gender. Men contributed $9,500 in 2022 compared to $7,700 for women. This is despite nearly identical workplace savings plan participation rates for men and women.

Workplace plans resilient

However, despite a challenging economic environment, the report shows the consistency and resiliency of workplace plans: 

  • Member assets in target date funds rose from 12% to 37% between 2010 and 2022. This is a testament to the success of set-it-and-forget-it options to manage risk exposure.
  • Educating members on the value of staying the course is resonating. Only 4% of plan members moved money between funds to manage risk in 2022. This is in comparison to 8% of members in 2019.
  • The average workplace plan account balance continues to grow. Among men, balances are up from $55,260 to $92,030 between 2010 and 2022. For women this rose from $37,090 to $69,410 during the same period.

“People are just finding it harder to save across the board,” says Eric Monteiro, senior vice-president, group retirement services, Sun Life. However, the report demonstrates the value of the workplace plan because, despite difficulties saving, “people are still saving quite a bit and they're still putting money away.

“And if you look at where they're putting the money, we have these ‘set and forget’ type of funds – target date funds – which do a much better job at investing money than the average employee can do.

“We also see that only 4% of members actually move their money around, which is exactly what we want to see. Typically, when people move their money around during market fluctuations, they will lose money, and we don’t want to see that.

“That means account balances continue to grow and we continue to see progress towards financial security.”

Struggles closer to retirement

Monteiro adds that Canadians’ financial struggles are also showing up closer to retirement.

“Only 15% of Canadians 40 years and older say they're confident that they can retire. Almost half of them are actually at risk of not having enough savings to live the lifestyle they want and outliving their money. The implication is that retirees are taking money sooner than they had planned.

“Almost one-quarter of Canadians are taking more than their minimums from their RRIFs/LIFs, and that's twice what it was two years ago.”

He says the most troubling part, however, is that retirement savings is taking a back seat during Canadians’ prime saving years. “From 35 to 55 is when people make or break their retirement savings. We are seeing people save less than in the past and, arguably, they weren't saving enough in the first place.”

Ultimately, the goal of a good workplace retirement savings plan is to have a more financially secure employee who will, in turn, be a more productive employee because they will not be stressed about their finances.

Monteiro suggests making the plan meaningful for employees. “We used to be in the retirement industry and now I like to think of ourselves as in the financial security industry because most people, especially in their 30s, are not thinking about their retirement.

“Make sure your plan design is flexible and smart and works for everybody.”