Even though there have been some signs of economic improvement over the past year, most employed Canadians are no better off when it comes to their retirement prospects.
According to the Canadian Payroll Association’s ninth annual survey, released today, 47% of working Canadians report it would be difficult to meet their financial obligations if their pay cheque was delayed by even a single week. The numbers are even higher for millennials in their 30s (55% would have difficulty) and Gen Xs in their 40s (51%).
The survey also shows that 41% of employees spend all of or more than their net pay. The number-one reason given for increased spending is higher living costs.
Forty-two per cent of survey respondents said they save 5% or less of their earnings, below the 10% savings level generally recommended by financial planning experts.
Illustrating just how strapped some employees are, 22% (nearly 1 in 4) say they could not come up with just $2,000 within a month for an emergency expense.
Debt levels of working Canadians continue to remain high. Over one-third (35%) of working Canadians feel overwhelmed by their level of debt. Nearly one-third (31%) of respondents say their debt load increased over the year. Those who believe it will take more than 10 years to pay down their debt has risen to 42% (versus 36% in 2016). Fully 12% believe they will never be debt free.
As in past years, 94% of respondents carry debt, with the most common debt being mortgages (28%), credit cards (17%), car loans (18%) and lines of credit (17%). Not surprisingly, given the high cost of real-estate in some areas, more respondents than ever find mortgages on principal residences the most difficult debt to pay down, with 32% of respondents selecting this option. For the first time in the survey’s nine year history, mortgages surpassed credit card debt (23%) as the most difficult to pay down.
Results indicate that the primary reason for increased debt is higher overall spending. The major reasons for increased spending are higher living expenses (32%) and unexpected expenses (25%). Despite their precarious financial situation, 26% of working Canadians feel that earning more is their best way to financial well-being, versus just 19% who think spending less is the ticket to financial security.
“These results underscore the need for spending less and saving more every day, for emergencies and for retirement,” says Janice MacLellan, the Canadian Payroll Association’s Vice-President of Operations. “They also show that it is very difficult for people to change or reduce their spending patterns. By Paying Yourself First through automatic payroll deductions, you are diverting money into a retirement or savings account before you have the opportunity to think about spending it.”
Almost half of working Canadians (46%) say they will now have to work longer than they planned five years ago, and the top reason cited is they are “not saving enough”.
This is corroborated by another result indicating that 74% have saved only a quarter or less of what they feel they will need to retire. And even among those closer to retirement (50 and older), a disturbing 47% are still less than a quarter of the way to their retirement savings goal.
The average target retirement age is now about 61, and half (46%) think they will need a retirement nest-egg of at least $1 million.
There were a few positive indicators, most notably a 5% increase in the number of employees with total household incomes of over $125K, and a slight rise (2%) in full time employment to 89%.
However, most working Canadians see little to cheer about, with only 39% expecting the economy in their city or town to improve. While up 3% over last year, it is down by 27% from the first survey done in 2009.
Their greatest concerns are the rising costs of living and the impact of potential interest rate increases.