Cover Story
Are You Prepared for Retirement?
By David Trahair, CPA, CA
David Trahair is a national bestselling author, CPA Magazine columnist, and speaker whose latest book, The
Procrastinator’s Guide to Retirement, was published by CPA Canada in 2015. He teaches customized personal finance
courses for a number of provincial CPA bodies, including CPABC, and will be teaching two courses for our PD program
this July (see sidebar on page 21).
In this article, geared at members who are within 10 years of retirement, Trahair explores some of the mixed
messaging about retirement readiness and outlines a five-step plan for success. More information, including several
free retirement-planning spreadsheets, is available on his website at trahair.com.
T
According to McKinsey’s 2014 analysis, 83% of the households surveyed scored above the
minimum threshold on RRI and, therefore, are adequately prepared for retirement. The report
also makes the observation that a household with two income earners and a constant combined
annual income of $40,000 or less throughout their working lives would be able to maintain their
standard of living in retirement based solely on income from OAS/GIS and the CPP/QPP.
So, are we grossly underprepared, as much of the data suggests, or have we positioned ourselves
quite comfortably for an enjoyable retirement?
Statistics Canada, “Registered retirement savings plan contributions, 2014,” The Daily,
1
February 26, 2016.
Ibid.
2
Statistics Canada, CANSIM Table 111-0040, accessed March 14, 2016.
3
18 CPABC in Focus • May/June 2016
STILLFX/iStock/Thinkstock
here have been many stories in the media stating that Canadians are in dire straits
when it comes to their retirement savings. This view is generally supported by the investment industry. Then along comes the odd study that concludes most of us are doing
just fine—thank you very much. It’s no wonder many Canadians are confused about their
retirement readiness.
Let’s start with the scary stuff. According to Statistics Canada, fewer than six million tax filers
contributed to an RRSP in 2014—that’s only 23% of those who were eligible to make an RRSP
contribution. What’s more: For those who made contributions in 2014, the median contribution
was only $3,000.1 Overall, Canadians’ total RRSP contributions in 2014 were $38.6 billion,2
which sounds substantial, until you consider that the total RRSP room available at the end of
that year was $951.1 billion.3 It’s clear that most Canadians are not contributing anywhere near
the maximum they could be.
From scary stuff to… unexpected stuff. In 2014, the consulting firm McKinsey & Company
published a report entitled Building on Canada’s Strong Retirement Readiness. The analysis is
based on an update to initial retirement readiness research conducted by the firm in 2011,
which analyzed the circumstances of approximately 9,000 working households and 3,000 retired households. McKinsey’s “Retirement Readiness Index” (RRI) measures a household’s
ability to maintain its standard of living in retirement, taking into account the four main sources
of retirement income:
• Universal retirement income programs (Old Age Security/Guaranteed Income
Supplement);
• Publicly funded pension plans (Canada Pension Plan/Quebec Pension Plan);
• Privately funded retirement plans (employer retirement plans, RRSPs); and
• Non-registered private savings (TFSAs, regular investment accounts).