Future retirees may face “steep decline” in living standards + MORE Jun 4th

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The average Canadian net worth rose 73% between 1999 and 2012 after adjusting for inflation, according to Statistics Canada.
The federal agency says average Canadian net worth increased to $554,100 from $319,800 over this period,with higher-income families outpacing the average.
The top 20% of families by income saw their average net worth rise 80% between 1999 and 2012, climbing from $721,900 to $1,300,100.
However, the bottom 20% of families by income saw their average net worth rise by 38% from $79,500 to $109,300 over the same period.
The total net worth of Canadian families increased by $4.17 trillion due to a $4.92 trillion increase in assets, offset by a $750 billion increase in debt.
Half of the increase in assets was due to real estate, while the other half was due to other types of assets, including employer pension plans.
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Canadians are “reasonably well-prepared for retirement” and should ignore the pressure to save more if they want to avoid eating cat food in their senior years, according to a report from the C.D. Howe Institute.

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Last week, the federal government announced that they would consider allowing Canadians to make voluntary contributions to the Canada Pension Plan (CPP). There is not much to go on as far as details, as Finance Minister Joe Oliver indicated that he would consult with “experts and stakeholders” before releasing a full proposal. But even without knowing the full details, does a voluntary CPP even make sense?
Since there is so little to work with, analyzing the proposal is incredibly difficult, though Jennifer Robson’s discussion of past CPP reforms is incredibly helpful. Whenever I analyze a policy proposal, I start by using the Public Policy Keltner List, a series of six questions that helps clarify my thinking on the matter. The first two questions are as follows:

What is the policy?
What is the policy meant to accomplish?

The second question is problematic here, because the government has given no indication of what a voluntary CPP is meant to accomplish…

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Millions of Canadians may face a “steep decline” in living standards once they retire, according to a report by the deputy chief economist at CIBC.
Benjamin Tal says that dire stats indicate that a change in the retirement income system is necessary.
While a portion of Canadians close to 65 “are on a path to the retirement of their dreams,” those who are younger and those in middle-income brackets are not, according to Tal.
The report notes that in total, about 5.8 million working age Canadians will see a more than 20% drop in living standards post-retirement.
With lowered costs of living factored in, Canadians born during WWII and baby boomers will see nearly 100% of their pre-retirement income—meaning their standard of living will be unaffected.  However, the report states that the children of baby boomers—the millennial generation—will be much less fortunate due to reduced private pension coverage and lower savings rates.
There has been a 23% decline in private defined benefit pension plan coverage in 10 years (from 2001 to 2011), as workplace pensions are not as widespread as they once were…

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Don’t panic, says a new report by the C. D. Howe Institute, Canadians are actually saving enough for retirement.
“The greatest challenges come early in their adult lives when the burdens of acquiring a home and supporting young children strain the family budget,” wrote report author Malcolm Hamilton. “After that, things get easier.”
Among the common assumptions about retirement that Hamilton debunks is the need for 70% of your pre-retirement income to maintain your lifestyle in retirement.
“The traditional 70% target is reasonable for young families who want to sacrifice heavily for 20 years so they can enjoy, after retirement, the high standard of living they can expect near the end of their working lives,” he said.
“It is also reasonable for those who never have children or buy a home. But for most Canadians the 70% target significantly overestimates both the income they need when they retire and the amount they must save to get there.”
In fact, Canadians are actually saving more than the reported 5% household savings rate…