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1. Retirees' subjective assessments of their financial situations
2. Preparations for retirement among working-age Canadians
3. Conclusions
4. References

1   Retirees' subjective assessments of their financial situations

The financial well-being of Canadian seniors can be assessed in various ways. The incidence of low income, that is, the proportion of households below a minimum-income threshold, is one common metric. Since the 1970s, the share of Canadian seniors in low-income has declined markedly, and is now among the lowest among industrialized countries (Baldwin 2009; Veall 2008; Baker and Milligan 2009; Myles 2000). However, low-income rates are higher than average among some groups, such as recent immigrants and divorced individuals (Veall 2008). Financial well-being can also be assessed in terms of replacement rates, defined as the share of pre-retirement income replaced in old age. Longitudinal data indicate that median replacement rates among recent cohorts of seniors meet or exceed levels generally recommended by the financial industry (i.e., 60% to 70%), although some seniors from the middle and upper end of the income distribution fall short of this benchmark (LaRochelle-Côté, Picot and Myles 2008).

Another approach to financial well-being is to ask seniors themselves about their circumstances. Have they been able to maintain their financial standard of living in retirement? Are they able to keep up with their bills and financial commitments? Such questions were included in the CFCS and provide information that complements the income measures noted above. CFCS respondents who identified themselves as retired ¹  were asked the following:

You mentioned earlier that you are currently retired. The next two questions are about your financial standard of living in retirement.

Compared to your expectations before you retired, how would you describe your financial standard of living in retirement?

1. Much better than expected
2. Better than expected
3. As expected
4. Not as good as expected
5. Much worse than expected

Is your retirement income sufficient to comfortably cover your monthly expenses?

1. Yes
2. No

The majority of retirees (59%) reported that their standard of living in retirement is what they expected it would be, while 17% reported that it is better or much better than expected (Table 1). Conversely, about one-quarter of retirees reported that their financial standard of living falls short of what they had expected. The majority of retirees (85%) reported that their retirement income is sufficient to comfortably cover their monthly expenses.

CFCS respondents of all ages were asked about their capacity to keep up with their bills and financial commitments. Specifically, the CFCS asked:

Again, thinking of the last 12 months, which one of the following statements best describes how well you and your immediate family have been keeping up with your bills and other financial commitments?

1. Keeping up with all bills and commitments without any problems
2. Keeping up with all bills and commitments, but it is sometimes a struggle
3. Having real financial problems and falling behind with bills or credit commitments
4. Don't have any bills or credit commitments

Responses to this question, which have been collapsed into three categories because of sample size considerations, are shown in Table 2. ²  Over 80% of retired respondents in all age groups express positive assessments of their capacity to keep up with bills and financial commitments, compared with about 60% to 70% of working-age Canadians.

Aggregate distributions such as those in Tables 1 and 2 may conceal differences in the outlooks of different groups of retirees. In order to provide a more nuanced perspective, Table 3 shows the subjective assessments of retirees disaggregated by various socio-economic characteristics. Considering marital status, about 14% of retirees who are married or common-law report it is sometimes a struggle keeping up with monthly bills, while this is the case for 25% of retirees who are separated or divorced. And while 21% retirees who are married or common-law report that their financial standard of living in retirement is not as good as expected or is much worse than expected, 35% of retirees who are separated or divorced are of this opinion. These figures take on added relevance when one considers that the share of seniors who are separated or divorced increased from 2.6% to 7.3% between 1976 and 2008 and that the share of 45-to-64-year-olds who are separated or divorced increased from 4.6% to 12.4%. ³ 

Considering other characteristics, large differences in financial assessments are evident across household income categories. While about 10% of retirees with household incomes of $80,000 or more report that keeping up with monthly bills and financial commitments is sometimes a struggle, this is the case for 29% of those with household incomes of less than $20,000. Large differences are also evident across housing tenure, particularly between individuals who are still making mortgage payments and those who are not.

The deterioration of labour market and financial outcomes of recent immigrants in Canada has been well-documented over the last decade, and CFCS results are consistent with that body of research. Specifically, individuals who have immigrated since 1980 and are now retired are more likely than Canadian-born retirees to experience difficulties meeting their monthly expenses.

To provide further insight on what might account for the differences observed across socio-economic characteristics, results from a set of multivariate regression models are presented in Table 4. These results show the correlation between each specific characteristic in the model and the various financial assessments, while other characteristics in the model are held constant.

The regression results confirm the strength of the correlation between household income and financial assessments. Compared to individuals with household income of $20,000 to $39,999, the likelihood of retirement income not being sufficient to comfortably cover monthly expenses is nine percentage points higher among their counterparts with household income under $20,000, and eight percentage points lower among their counterparts with household income over $80,000. ⁴ 

The correlations between financial assessments and housing tenure remain significant when other characteristics are taken into account, including household income. The difference remains largest between retirees who are mortgage-free and retirees making mortgage payments (11 v. 23 percentage points). The decisions or circumstances that lead individuals to retire before paying off their mortgage (or to re-mortgage their home in retirement) cannot be discerned from CFCS data.

When household income and other characteristics are taken into account, the correlations between financial assessments and separation/divorce become non-significant. Compared with retirees in other marital states, those who are separated or divorced are most likely to have household incomes under $20,000 and are least likely to own their homes mortgage-free. ⁵  It is these factors that account for the prevalence of negative financial assessments among this group. ⁶ 

With regard to immigration status, the predicted probability of negative financial assessments remains significantly higher among immigrants who landed prior to 1980 than among the Canadian-born when other characteristics are taken into account. The difference ranges between 6 and 9 percentage points. Most differences between immigrants who have landed since 1980 and Canadian-born retirees become non-significant in the multivariate model, with the exception of being able to comfortably cover monthly expenses. Small sample is likely a factor. ⁷ 

Finally, while there is no significant difference in the likelihood of women and men reporting difficulties keeping up with their monthly expenses, women are more likely than men to report that their financial standard of living in retirement falls short of their expectations (a difference of five percentage points).

2   Preparations for retirement among working-age Canadians

The focus of the analysis now shifts to working-age Canadians and their financial preparations for retirement. Specifically, the CFCS asked non-retired respondents the following:

This section contains questions about the plans you may have for your retirement.

Are you financially preparing for your retirement either on your own or through an employer pension plan?

Respondents were also asked:

Do you have a good idea of how much money you will need to save to maintain your desired standard of living when you retire?

The responses of labour force participants aged 25 to 64 are shown in Table 5. Most of them (81%) reported that they are financially preparing for retirement, with descriptive statistics indicating that the shares doing so vary across marital status, educational attainment, immigration status, employment status, household income, and housing tenure. Individuals who reported that they are not making financial preparations for retirement were asked why, with the largest share citing financial reasons.

Other research has documented the degree of uncertainty that working-age Canadians express regarding their retirement plans (Ostrovsky and Schellenberg 2008). This uncertainty is evident in CFCS results, as less than half of labour force participants aged 25 to 64 reported that they have a good idea of how much they will need to save in order to maintain their standard of living in retirement. While differences are evident across socio-economic characteristics, such uncertainty is prevalent among virtually all groups.

The sources of income upon which today's and tomorrow's seniors rely are central to current discussions of Canada's retirement income system, particularly the role played by workplace pensions and Registered Retirement Savings Plans (RRSPs). Information on other forms of savings, such as non-registered financial assets, property, and business assets, remains extremely limited.

The CFCS offers insights on the variety of revenue sources from which working-age Canadians expect to receive retirement income. CFCS respondents who reported that they are financially preparing for retirement were asked the following:

Which of the following sources of revenue are included in your financial plan for retirement?

The responses are shown in Chart 1. Over 80% of labour force participants aged 25 to 64 include income from Registered Retirement Savings Plans (RRSPs) and government pensions in their plans, and 61% include income from workplace pensions (Chart 1). ⁸  Respondents were not asked how much income they expect to receive from each source.

Notably, 44% of respondents include employment earnings as an anticipated source of retirement income. Readers are reminded that the CFCS was fielded during the economic downturn of 2009; consequently, respondents' views may have been influenced by that context. Nonetheless, these data suggest that some Canadians do not view retirement and labour force withdrawal as synonymous, and that partial retirement or post-retirement employment are being considered as options by some. The blurring of the line between retirement and labour force activity is further evidenced by the fact that 19% of respondents include business income as an anticipated source of retirement income. ⁹ 

In addition to RRSPs, pensions, and earnings, many working-age Canadians expect to receive retirement income from other sources. For example, 26% expect to receive income from the sale of financial assets held outside of RRSPs, and 16% expect to receive income from the sale of non-financial assets, such as a home, other properties, vehicles, or other tangible assets. The share of respondents intending specifically to derive retirement income by downsizing to a smaller home cannot be determined from the CFCS. However, fewer than 4% expect to generate retirement income from a reverse mortgage. About 17% of working-age Canadians include inheritances in their retirement plans.

Looking across socio-economic characteristics, fairly consistent shares of working-age Canadians expect to receive retirement income from several of these sources, such as employment earnings, inheritances, and the sale of non-financial assets (see Table 6). The other anticipated sources of retirement income, including the sale of financial assets and pension coverage, vary more across socio-economic characteristics, particularly household income.

One comparison of particular note is that between paid employees and self-employed workers. These two groups differ in many respects, such as their eligibility to belong to a workplace pension, their opportunity to accumulate wealth in the form of business assets, and their retirement transitions. ¹⁰  The anticipated sources of income that they include in their retirement plans also differ (Chart 2). As one might expect, self-employed workers are far less likely than paid employees to include workplace pension income in their retirement plans and are far more likely to include business income. In addition, self-employed workers are more likely to include revenue from the sale of financial and non-financial assets in their plans.

However, while working-age Canadians include income from a variety of sources in their retirement plans, most expect workplace pensions (29%), RRSPs or Retirement Income Funds (28%), or government pensions (16%) to be their primary source of income. Overall, about three-quarters of working-age Canadians expect to rely on one of these three sources. Of the remaining respondents, 14% expect to rely on some other source of income in retirement, and 13% do not know what their primary source of income will be. Primary sources of income anticipated in retirement vary considerably across socio-economic characteristics, including age group, immigration status, employment status (i.e., paid employees and self-employed), pension coverage, and household income (see Table 7).

3   Conclusions

The objective of this research note has been to provide a timely overview of selected highlights from the 2009 Canadian Financial Capability Survey. Results show that the majority of retired Canadians have positive assessments of their financial situations and feel that their standard of living in retirement is what they expected it would be. Nonetheless, depending on the measure used, some 15% to 22% of retirees express negative assessments. Not surprisingly, lower household income in retirement is strongly correlated with negative assessments, and this explains why such assessments are more prevalent among certain groups, such as retirees who are separated or divorced and those who immigrated to Canada. These findings are consistent with other studies of financial well-being among seniors (Veall 2008).

The correlations between housing tenure—specifically, having a mortgage or being mortgage-free—and financial assessments are particularly striking, even when household income is taken into account. CFCS data do not allow us to identify the circumstances or events that led people to retire before paying off their mortgages or to re-mortgage their homes in retirement.

Most working-age Canadians are making financial preparations for retirement, although about half report that they do not know how much they need to save to maintain their standard of living in old age. And while most Canadians expect to rely on government pensions, workplace pensions, or their RRSPs as their primary source of retirement income, many are also saving in other ways, such as through non-registered financial assets, non-financial assets, and business assets. This is particularly so for self-employed individuals.

4   References

Baker, Michael, and Kevin Milligan. 2009. Government and Retirement Incomes in Canada. Department of Finance. Consulted on the Internet at the following address: http://www.fin.gc.ca/activty/pubs/pension/ref-bib/baker-eng.asp (accessed on March 1, 2010)

Baldwin, Bob. 2009. Research Study on the Canadian Retirement Income System: Prepared for the Ministry of Finance, Government Of Ontario. Consulted on the Internet at the following address: http://www.fin.gov.on.ca/en/consultations/pension/dec09report.html (accessed on March 1, 2010)

LaRochelle-Côté, Sébastien, Garnett Picot, and John Myles. 2008. Income Security and Stability During Retirement in Canada. Statistics Canada Catalogue no. 11F0019M. Ottawa. Analytical Studies Branch Research Paper Series. No. 306.

Myles, John. 2000. The Maturation of Canada 's Retirement Income System: Income Levels, Income Inequality and Low-Income among the Elderly. Statistics Canada Catalogue no. 11F0019M. Ottawa. Analytical Studies Branch Research Paper Series. No. 147.

Schellenberg, Grant, and Yuri Ostrovsky. 2008. "2007 General Social Survey Report: The retirement plans and expectations of older workers."Canadian Social Trends. Statistics Canada Catalogue no. 11-008. Winter 2008. No. 86. p. 11-34.

Veall, Michael. 2008. "Canadian Seniors and the Low Income Measure." Canadian Public Policy / Analyse de Politiques. Vol. 34. Special Supplement on Private Pensions and Income Security in Old Age: An Uncertain Future. November 2008. University of Toronto Press. p. 47-58.