Despite improved retirement security, Canadians remain worried

Canadians express concerns about finances, with inflation topping the list

Despite improved retirement security, Canadians remain worried

In a decade-first achievement, the majority of developed nations, including Canada, witnessed a rise in their overall scores for retirement security in Natixis Investment Managers' Global Retirement Index (GRI) compared to the previous year. The annual index attributes this improvement to positive economic factors such as job growth, wage increases, and interest rate stability.  

However, a new study from Natixis Investment Managers (Natixis IM) suggests that despite this macro-level optimism, many Canadians, both retirees and workers, continue to harbor doubts about their financial futures in retirement. 

According to Natixis IM's survey, which targeted affluent individual investors with at least $100,000 in investable assets, 32% of working Canadians identified inflation as a major impediment to their retirement aspirations. 80% of respondents, including 68% of retirees, acknowledged that recent history has highlighted the substantial threat posed by inflation to their retirement security, eroding their income and savings.  

In addition to inflation, many Canadians are also anxious about potential reductions in government benefits, ranking it among their top three retirement concerns. 

Despite 36% of working Canadians envisioning financial freedom in retirement, 64% anticipate making tough choices and trade-offs:  

  • 20% envisioning continued work during retirement 

  • 14% believing they'll have to rely on family and friends for financial support 

Liana Magner, executive vice president and head of retirement and institutional in the US at Natixis IM, commented on the complex landscape of retirement funding, highlighting the impact of economic recovery, increased wages, and inflation. 

“As economies have rebounded from the global pandemic, employment and wages have increased but so has inflation, forcing central banks to boost interest rates. It’s a good news-bad news scenario for retirement security, and further underscores the complexity of the retirement funding challenge,” she said. 

Retirement index trends 

In 2023, Canada's overall score in the Retirement Index rose to 74%, up from 71% in 2022, propelling the country from 15th to 12th place in the annual ranking of retirement security among 44 countries.  

This ascent was driven by improved scores in unemployment and income equality indicators, along with the stabilization of interest rates. Additionally, progress in implementing UN Sustainable Development goals contributed to enhanced water resources and sanitation.  

However, Canada did experience a slight decrease in happiness scores and life expectancy.  

Canada's rankings in the four sub-indices for 2023, compared to the previous year, are as follows: 

  • 10th for finances in retirement, up from 12th 

  • 13th for health, down from 11th 

  • 17th for quality of life, down from 16th 

  • 19th for material well-being, up from 27th 

Key risks to retirement security 

Natixis IM's 2023 survey of Individual Investors found that 38% of working Canadians believe achieving a secure retirement would require a miracle, an increase from the 25% who expressed similar sentiments in 2021. 

Dave Goodsell, head of the Natixis Center for Investor Insights, emphasized the importance of confronting retirement challenges through planning and education.  

“Saving for retirement was already a challenge. Now, as people think about the impact of higher prices, longer lives, and the potential for reduced retirement benefits, many are doubting whether they will be able to put all the pieces together,” he said. “They may think they need a miracle, but the best course of action is to face the challenges head-on through planning and education.” 

Natixis IM identified five key risks to retirement security: 

1. Inflation 

60% of working Canadians indicated that inflation significantly hampered their retirement savings. Inflation also ranked as a top investment concern for 63% of respondents, including 65% of retirees. Rising everyday expenses were a significant financial fear for both workers (75%) and retirees (77%). 

2. Public debt 

73% of Canadians expressed worries that high levels of public debt could lead to reduced retirement benefits in the future. Cutbacks in government benefits (36%) were cited as one of the top three retirement fears. 

3. Rising interest rates 

While higher interest rates should benefit retirees by providing stable income from savings and strengthening bonds' role in portfolios, only 20% of retirees and 26% of workers planned to add bonds to their portfolios.  

4. Demographics 

82% of Canadians believed that government programs did not account for longer lifespans, and 65% recognized the challenges faced by women in achieving retirement security due to longer life expectancy and caregiving roles. 

5. High expectations and uncertain assumptions 

While 42% of working Canadians accepted the need to work longer than expected, 31% worried they wouldn't be able to do so. Retirees reported retiring four years earlier on average than their planned retirement age of 65, with 27% indicating tighter finances than anticipated.