Just yesterday we talked about seniors and their debt, and today that focus shifts to today’s baby boomers. According to a new study conducted by BMO, baby boomers don’t have the amount of income they believe they need to retire comfortably.
As you can see from the chart above, nearly half – 46 per cent – of baby boomers don’t feel as though they have enough saved for retirement. That’s a huge jump from 2006, when only 20 per cent felt the same way.
“We had the credit crisis in 2008 and there’s been quite a bit of volatility in the markets during that period; it’s also been a period of low yield,” says Chris Buttigieg, senior manager of wealth planning strategy at BMO Financial Group.
“Perhaps the boomers in 2006, when the markets were doing well, were invested but they may have been spooked from the markets as a result of the credit crisis and their portfolios may have been impacted negatively.”
According to the survey, boomers today feel that they need roughly $658,000 for their retirement. And as it stands, they have only about one-third of that socked away. And they may need even more than that. According to Statistics Canada, senior couples spent $54,100 in 2009 on average. Taking into considerations returns and the current 4 per cent withdrawal rate, that would mean that the same senior couple would need $1.35 million for their retirement years.
However, these figures and the survey didn’t take into consideration CPP or OAS earnings in the retirement years; and that’s where the key numbers lie, says Adrian Mastracci, financial planner with KCM Wealth Management Inc. in Vancouver. With a family receiving CPP and OAS at the average rate of 75 per cent, they would be receiving about $28,000 a year from those government earnings.
“The key is to figure out what the numbers are for you,” says Mastracci. “Each family should look at the retirement projections for them. Once you know how much capital you need to get there, you can figure out how much you have to save and kind of returns you need – but you have to have that projection done for you first.”
So what will boomers do if they find in retirement that they don’t have the money they need? The chart below shows that while most will take on a part-time job, some will still have to sell some of their possessions including antiques and collectibles; and others will rent out a portion of their home. More will sell their home rather than simply rent it out.
And why won’t boomers have as much as they think they need? Mastracci says that while inflation, low returns, and longer life spans are part of the problem, it’s really debt that’s the biggest problem boomers are facing today.
“A lot of retirees still have debts and they have to clear the deck,” he says.