From $183K to $833K: How Canadians in their 50s bridge the retirement savings gap

A stark reality check on retirement savings

Retirement planning is often seen as a distant concern — until it isn’t. A viral tweet recently shed light on a growing crisis: individuals approaching their 50s with little to no retirement savings.

In the tweet, a 49-year-old confesses to having zero retirement funds and only $900 in their bank account, sparking widespread discussion about financial preparedness.

This stark reality is not unique; many Canadians find themselves in similar situations, highlighting the importance of understanding average retirement savings and setting realistic financial goals.

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State of retirement savings in Canada

Retirement savings in Canada vary significantly by age, yet many people fall short of their goals.

According to a research study released by Money.ca, the average retirement savings for Canadians aged 45 to 54 is approximately $138,435, while those aged 55 to 64 have an average retirement portfolio of $339,910. However, these averages don't necessarily reflect how much you should save for a comfortable retirement.

Many middle-aged Canadians report feeling unprepared, often due to competing financial responsibilities such as mortgages, children’s education and daily expenses. A survey by YouGov found that only 19% of Canadians aged 35 to 54 feel confident in their retirement savings, compared to 26% of those over 55. This growing concern underscores the need for proactive financial planning, even for those who feel behind in their savings journey.

Understanding the importance of catch-up contributions

Your 50s are prime earning years for most Canadians, which means you can boost your savings significantly. In fact, the Canada Revenue Agency (CRA) allows individuals over 50 to make higher contributions to tax-advantaged accounts such as Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). These “catch-up” contributions can help accelerate the growth of your retirement fund.

For example:

• RRSP Contribution Limits: You can contribute up to 18% of your previous year’s income, up to the maximum limit for the current year. If you have unused RRSP contribution room from previous years, this is the time to use it.
• TFSA Limits: With an annual limit of $7,000 (2024), you can also utilize unused contribution room from previous years to save more.

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Automate your savings

Consistency is key. Automate contributions to your RRSP, TFSA or other savings accounts to ensure that you’re putting aside money regularly. Payroll deductions or pre-authorized transfers make it easier to stay disciplined.

Maximizing investment returns

Investments play a crucial role in catching up on retirement savings. Meet with a financial advisor to:

• Ensure your portfolio is appropriately balanced between high- and low-risk assets.
• Take advantage of investment opportunities within your RRSP or TFSA to grow your savings tax-efficiently.
• Consider dividend-paying stocks, mutual funds, or bonds that align with your risk tolerance and retirement timeline.

Reevaluating your financial plan

By your 50s, you likely have a clearer picture of your retirement timeline and financial needs. This is the perfect time to:

• Assess Retirement Goals: Determine your target retirement age and desired lifestyle. Will you travel? Downsize your home? Understanding your goals will help you estimate how much you need to save.
• Review Retirement Income Sources: Look at your projected income from sources such as Old Age Security (OAS), the Canada Pension Plan (CPP), workplace pensions and personal savings. This will help you identify potential shortfalls.

Cutting expenses and reducing debt

Reducing your financial obligations now can significantly impact your retirement readiness. Focus on:

• Paying Off High-Interest Debt: Credit card balances and personal loans should be prioritized to free up more income for savings.
• Downsizing or Simplifying Living Arrangements: Consider moving to a smaller home or reducing discretionary spending to redirect funds toward your retirement.

Exploring additional income streams

If your current savings are insufficient, look into ways to boost your income:

• Take on Freelance Work or a Side Hustle: Earning additional income can be a fast track to saving more.
• Sell Unneeded Assets: Downsizing and selling unused property or assets can provide a financial boost.
• Consider Working Longer: Delaying retirement by even a few years can significantly increase your savings and reduce the number of years you need to draw on them.

Delay benefits for bigger payouts

For Canadians nearing retirement, delaying government benefits such as CPP or OAS can lead to increased monthly payouts. For example:

• Delaying CPP past age 65 can increase payments by 8.4% per year (up to age 70).
• Waiting to take OAS benefits can result in a 0.6% increase per month (or 7.2% per year).

Bottom line

Catching up on retirement savings in your 50s is not just possible — it’s achievable with a well-thought-out plan. By taking advantage of tax-advantaged accounts, reducing debt, optimizing investments and boosting income where possible, you can bridge the gap and retire comfortably. Remember, the best time to start was yesterday, but the next best time is today.