Saving for retirement: where the challenges are

The question we have to ask about every good news personal-finance story is whether the young adults of Generation Y are part of it. In some cases, the answer is no. The housing market is crushing Gen Y, not making it rich. And it also looks like these 20- and 30-somethings won’t be as well off in retirement.


There’s a developing narrative that, far from having a retirement crisis in this country, most people are doing okay in saving for their senior years. The consulting firm McKinsey & Co. surveyed 12,000 households recently and found that 83 per cent of people should be able to keep their standard of living after they stop working. McKinsey principal Fabrice Morin said retirement preparedness didn’t vary a lot among older and younger age groups. “But projecting the situation in retirement of someone who is 55 or 60 today can be done with a lot of accuracy or confidence,” Mr. Morin said in an interview. “With someone who is 25 or 30, any study will have a greater factor of uncertainty.”

So let’s take a closer look at how young adults are likely to fare in retirement saving. Our guide is Fred Vettese, chief actuary at the benefits consulting firm Morneau Shepell. Mr. Vettese also believes that worries about retirement saving are overdone, but he limits this view to recent retirees and people who are a decade or two from leaving the work force. “Young people are definitely going to have some challenges,” he said.

One issue concerns Old Age Security, which right now maxes out at a modest but still useful $6,764.88 annually. Starting in 2023, the age of eligibility for OAS will gradually rise over six years to 67 from 65. Also, many young people will end up working on a temporary or contract basis and thus have no company pension to help build retirement savings.

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