We Are Better Prepared than We Thought

Based on what we discovered in the first two chapters, we can be confident that we will avoid outright poverty in our retirement years. Even if we don't save diligently, Canada's social safety net will ensure that we still have a roof over our heads and food on the table. This is a good thing, of course, but is that all we expect? Of course not! We want to keep on living a full life after we retire and part of this involves maintaining the same standard of living we had when we were working. To do so will take money.

By all appearances, Canadians are not preparing adequately for their retirement. Former Bank of Canada Governor David Dodge said as much when he asserted that, “except for the working poor, Canadians must save a very high fraction of pre-retirement earnings every year . . . to provide for reasonably adequate and assured retirement incomes.”1 Clearly this hasn't been happening. Three quarters of private sector workers will retire without a workplace pension, while barely a third of taxpayers contribute to an RRSP in any given year. It sounds as though many of us will be suffering a dramatic drop in our standard of living after retirement, but is this true?

It is easier to answer this question if we first break it down into smaller pieces. Since the answer depends on income level, the first step is to divide up all households into five equal-sized groups, known as quintiles. Each quintile holds 20 per cent of Canadian households ...

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