Canadians are shifting their idea of what retirement looks like as they save less amid a higher cost of living, new research suggests.
Retiring at 65 to enjoy a life of leisure appears to be a thing of the past for many, and half of Canadians say they’ll need to work part-time in the gig economy after leaving their primary careers to pay their bills, according to a recent poll from H&R Block Canada Inc. That comes as 52 per cent say they don’t have anything left over at the end of the month to devote to retirement savings. One in 10 admit to having saved nothing for retirement at all.
At the same time, people are aiming to retire younger. Close to half want to quit their jobs before turning 64. Yet, there are others who think retirement will be completely out of reach, with 36 per cent of those between the ages of 18 and 54 believing they’ll never be able to stop working. That might be why so many are looking to the gig economy, which allows people to take on part-time side hustles driving passengers or delivering groceries or restaurant take-out, to help them fill the gap.
Many are also betting that employer and government pension plans will keep them afloat in their old age. Thirty-seven per cent say they have access to a pension from work, while 19 per cent say they’ll need to rely on government pensions, such as the Canada Pension Plan, to make ends meet.
“Not so long ago, the traditional vision of retirement was that at around 65 years old, Canadians ‘hung up their hats’ and celebrated the end of full-time employment,” Peter Bruno, president of H&R Block Canada, said in a press release. “What we’re seeing now is that the vision for retirement has evolved dramatically, fuelled by shifts in tax-friendly savings plan options, evolving workforce realities, the gig economy and the prevailing economic environment.”
High inflation and elevated interest rates have made it more difficult for people to stretch their dollars to go to savings. This year, 65 per cent say they’ll be putting less into their registered retirement savings plans (RRSPs) and tax free savings accounts (TFSAs). Further, more than half admit to not understanding how to make the most of those government retirement savings vehicles, even though most believe RRSPs and TFSAs are needed in a good retirement plan.
But failing to maximize those accounts could be a big mistake, especially in a challenging economic environment where every penny counts.
“There is no one-size-fits-all retirement plan or strategy for Canadians, but regardless of your personal situation, having a good understating of your options and how tax-friendly savings plans work is key,” Bruno said.
So, too, is understanding how to take advantage of government tax credits and changes to “maximize your tax return and minimize your taxable income,” he added.
This year there are a number of changes for people to consider when it comes to retirement planning, H&R Block Canada said. For example, the contribution limits for RRSPs and TFSAs have gone up for the 2023 tax year, with the RRSP limit rising to $30,880 and the TFSA yearly cap increasing to $6,500.
Old Age Security (OAS) limits have also changed, the tax return company, and that means some people over the age of 65 with income above $81,761 may be on the hook to repay a portion of their OAS to the government. Others will be seeing more money in their accounts, as Ottawa granted Canadians older than 75 were a 10 per cent increase in payments, as of July 2022.
On the pension front, maximum contribution limits from both CPP and the Quebec Pension Plan have risen by 2.7 per cent, H&R Block Canada said.