Canadian retirees are living on an average 62% of the income they earned prior to leaving the workforce. That’s the key finding in a new study – the Sun Life Financial Retirement Now Report – released today. The study included a sample of 2,006 Canadians who shared their views on what it’s like to be retired in today’s economy.
Experts have long advised Canadians to work towards a 70% income replacement rate in retirement. More recently, prominent experts like Malcolm Hamilton at the C.D. Howe Institute have challenged that assumption. They argue that retirees spend less than working Canadians, given that housing, education and other major family expenses are usually behind them. Add to that a tendency among seniors to live more frugally than they did during their working lives.
We see our 62% result as consistent with that view. So are our findings on what retirees spend each month in comparison to working Canadians. There is a 24% difference between the two groups. Workers spend an average $3,431 monthly on a list of regular expenses that includes food, housing, health care, income tax, leisure/travel, entertainment, transportation and savings. The average retiree spends $2,611.
How are those retirees doing? We asked respondents: “Generally speaking do you feel positive or negative about your life in retirement?” Nine in 10 (88%) answered positively. Except for in Ontario, where 84% gave a positive answer, there are no statistical differences between the provinces. Similarly, a comparison of the percentage of men and women who answer positively falls within the margin of error.
There are differences by marital status: 90% of married retirees answered positively, versus 84% of single retirees and 85% of those who are divorced, separated or widowed.
Generally, retirees say they’re in better health now than when they were in the workforce. This came through prominently in our question about emotional health. Six in 10 (62%) agreed with the statement: “My emotional health has improved in retirement.” Just 25% disagreed and 13% answered “don’t know.”
The results are less clear in terms of physical health (which stands to reason, given the aging process). Four in 10 (42%) agree with the statement: “My physical health has improved in retirement.” About the same number (45%) disagreed and 13% answered “don’t know.” But when we turned the question around, just 27% told us their physical health has “deteriorated in retirement.”
Financially, one-third (32%) of retirees said their biggest single surprise in retirement was “how easy it is to live on a reduced budget.”
Some disagreed. Twenty-two per cent said their single biggest financial surprise was “how difficult it is to live on a reduced budget.” Ten per cent said “I’m spending more than I expected;” another 10% said “I’m spending less than I expected.”
And when we asked retirees if they saved enough for retirement, 49% said yes. One third (33%) said no and another 19% weren’t sure. Among those who work with a financial advisor, 62% believe they’ve saved enough. Four in 10 (38%) of those who don’t work with an advisor said the same thing.
What’s clear in all these numbers is that a financially comfortable, good life has proven attainable for a large majority of current retirees. We know – thanks to data from the Organization for Economic Co-operation and Development – that our senior citizen poverty levels are among the lowest in the world.
Living on something close to 62% of pre-retirement income isn’t for everyone. But the anxiety a lot of us feel about our future during times of economic volatility is probably overstated.
Watch for more on this in future blog posts.