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Employees need 11 times their annual pay to retire comfortably: Research

Retirement readiness gap is 'real' for Canadian workers, says Aon


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How much money do your employees need to retire comfortably?

They’ll need to sock away 10.9 times their annual pay to maintain the same spendable income after retirement, according to research by Aon. That means a worker earning $50,000 would require $545,000 while someone earning $100,000 would need nearly $1.1 million.

The company’s Real Deal report define retirement income adequacy as having the same spendable income after retirement as before, taking into account changes in savings, taxes, medical expenses and other factors.

“The retirement readiness gap is real for Canadian workers,” said William da Silva, senior partner and Canadian director of retirement solutions, Aon. “This is an opportunity for employers to ask the right questions: Are contribution levels appropriate, and designed in alignment with the plan sponsor’s objectives? Are employees equipped with resources to manage their finances and plan for their retirement? Do employees understand the impacts of medical cost inflation and other post-retirement expenses? Clearly, there’s a need to look both at the substance of workplace retirement programs and at the ‘soft’ levers of education and information.”

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Employees have “clear expectations” that their employer should provide increased support for their overall financial wellbeing, said Rosalind Gilbert, senior actuary and associate partner of retirement solutions at Aon.

“Capital accumulation plan (CAP) sponsors are focusing on areas that are well aligned with this objective,” said Gilbert. “The Real Deal arms employers with analytics to identify the overall retirement readiness of their workforce and identify strategies to address employee needs.”

Key findings

  • Retirement income comes from various sources – workplace retirement savings plans, government pensions (C/QPP and Old Age Security (OAS)), as well as personal savings. On average, Canadian employees need to have 16 per cent of their annual pay going into workplace and personal retirement savings every year from age 25.
  • In the absence of personal savings, the average Canadian employee will come up short against the 10.9 times pay goal. They would have to delay retirement to age 70 to be financially ready to retire and maintain the same net available income after retirement or lower their standard of living by approximately 30 percent to make up for the savings shortfall.
  • For younger workers, retirement savings needs are even higher than average, as they will likely need to provide for a longer decumulation period due to increasing life expectancy, as well as cover higher medical costs, which increase faster than salaries.

Aon is a global professional services firm providing a range of risk, retirement and health solutions.