Do Canadians Save Too Little?

32 Pages Posted: 6 Jun 2015

Date Written: June 4, 2015


The common notion that Canadians save too little for retirement, which often underpins discussions of pension reform, requires closer examination. The author brings fresh thinking to the issue and comes to a very different conclusion. First, he assesses the assumptions underlying the assertion that few middle-income workers have sufficient retirement savings. They are: 1. the household saving rate, which is calculated by Statistics Canada as a by-product of Canada’s National Accounts, is a reliable estimate of the amount that Canadian workers set aside for retirement; and 2. to maintain their pre-retirement lifestyle after they retire, Canadians need to replace 70 percent of their gross employment income. Neither assumption is correct, says the author. To demonstrate why, he examines the failings of the household saving rate as a measure of retirement savings; takes a closer look at the factors that have contributed to the decline in household saving and to explain how this decline has been misinterpreted; discusses the limitations of the 70 percent replacement target and asks how much Canadians really need to save for retirement. Finally, he questions the reliability of the studies on which the Province of Ontario has relied in making the case for the Ontario Retirement Pension Plan and discusses the policy implications. Canadians are reasonably well prepared for retirement, he concludes. Most save more than the 5 percent household saving rate. Most can retire comfortably on less than the traditional 70 percent replacement target. The greatest challenges come early in their adult lives when the burdens of acquiring a home and supporting young children strain the family budget. After that, things get easier. As studies of our retirement system become more sophisticated, we focus more on the distribution of outcomes and less on the averages. We inevitably discover that while many appear to be saving too much relative to the arbitrary thresholds chosen for these studies, others appear to be saving too little. The size of the group that appears to be “at risk” cannot be accurately determined nor can the attributes of its members be usefully described. When studies conclude that gross replacement targets are unreliable measures of retirement income adequacy due to the diversity of our population, they are also concluding that programs like the Canada and Quebec Pension Plans can go only so far in addressing our retirement needs. They can establish a lowest common denominator – a replacement target that all Canadians should strive to equal or exceed. Beyond that, we need better-targeted programs – programs that are better able to recognize and address our individual needs.

Keywords: Social Policy, Pension, Retirement Income and Saving

JEL Classification: J26, D91

Suggested Citation

Hamilton, Malcolm P., Do Canadians Save Too Little? (June 4, 2015). C.D. Howe Institute Commentary No. 428. Available at SSRN: or

Malcolm P. Hamilton (Contact Author)

C.D. Howe Institute ( email )

67 Yonge St., Suite 300
Toronto, Ontario M5E 1J8

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