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News



July 11, 2012
Affluent seniors less prepared for retirement, report says

The older and richer you are, the less likely you are prepared for retirement, a report by the McKinsey & Co. management consulting firm suggests.

In its study of the potential of Canadians to maintain their current lifestyles after retirement, the firm found that 25 per cent of respondents had not saved enough. The majority of those people were middle aged and earning middle class incomes. Joining them were the bulk of the highest income earners, those earning $140,000 or more.

"They will have to significantly adjust their standard of living or delay their retirement if they continue on the same savings path," says report co-author Fabrice Morin.

However, the picture is far more optimistic for low income earners, those earning $20,000 or less, the McKinsey & Co. report says.

According to the survey, government benefits such as Old Age Security (OAS), the Guaranteed Income Supplement (GIS) and the Canada/Quebec Pension Plan (C/QPP) provide adequate benefits to meet their income replacement needs following their retirement.

The McKinsey report notes that low income earners need 80 per cent of their pre-retirement income to maintain their lifestyle after retirement while all other income groups need just 65 per cent. The OAS benefit currently pays just over $540 per month, or $6,481 per year. Depending on their circumstances and work history, other government benefits such as the C/QPP and GIS, could push their income replacement ratios close to the 80 per cent level. For those with higher incomes, the gap between the income provided by government plans and the 65 per cent income replacement mark would have to be supplemented by personal savings, pensions and other income sources.

Ironically, the working poor may be better able to adapt financially to retirement than middle or upper income earners.

The report suggests that, to boost retirement savings, voluntary participation in defined contribution plans be replaced by automatic enrolment. It also encourages the adoption of measures to encourage Canadians to work longer as well as the enhancement of current government pension benefits.

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