Building savings, paying down debt and choosing the right financial products for retirement

By Jane Rooney, Canada’s Financial Literacy Leader

May 10, 2017

Recently, I wrote about the National Research Plan for Financial Literacy. In that post, I explained the importance of research in developing financial literacy programs, tools, and information campaigns for consumers, and outlined our four research priorities. You can read about one of these priorities, budgeting, in last week’s blog post

Here, I will talk about a new FCAC research report which looks at the importance of building savings, paying down debt, and choosing the right financial products, particularly in the years leading up to and during retirement.

Our new analysis, Financial Literacy and Retirement Well-Being in Canada, is based on data from the Canadian Financial Capability Survey

While we find that many retirees are able to comfortably meet their financial commitments, our analysis also shows that a small but growing proportion of retirees is in debt. Nineteen per cent of retirees had a mortgage on their primary residence in 2014, up from 16 per cent in 2009. Similarly, the proportion of retirees with an outstanding credit card balance increased to almost 15 per cent in 2014 from 12 percent in 2009. More debt in retirement is a cause for concern because this group is on a fixed income. What if interest rates rise?

And, what about the next generation of retirees? 

In an increasingly complicated marketplace, financial consumers are being asked to take on more responsibility – and assume more risk – for planning and saving for their future. This creates challenges when deciding on the best path to build savings and pay down debt.

While many Canadians are taking steps to financially prepare for retirement, we found that a majority of pre-retirees (those 55 and older, who are working) do not have a clear idea of how much money they need for a comfortable retirement. 

You wouldn’t plan to purchase a car or remodel your home without knowing how much it would cost. So why plan for retirement before having a good idea of how much money you need to comfortably retire?  Our analysis also found some encouraging news about how financial literacy can help. We found that those who stick to a budget are twice as likely as those who don’t budget to have a good idea of how much money they need for a comfortable retirement. Similarly, near-retirees who are seeking advice on financial products are much more likely than those who aren’t to be planning for their retirement.

Our analysis also uncovered a link between financial confidence and financial well-being. We found that near-retirees who feel that they are in control of their finances (e.g., confident in their ability to make ends meet, and to choose financial products) are much more likely to be planning for their retirement. 

Accurate and unbiased information presented at the right time can further enable Canadians to think about what their financial future will look like. For example, resources such as FCAC’s Retirement planning page and ESDC’s Canadian Retirement Income Calculator provide Canadians with experiential learning opportunities to plan their own retirement goals and calculate future income in retirement. 

In my next blog, I will look at another key priority of our research plan:  evaluating the effectiveness of financial literacy programs.

So stay tuned!

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