Inflation and interest rates cause concern. More strongly felt among 18-34 year olds and pre-retirees, fear and uncertainty undermine many retirement plans.
The Healthcare of Ontario Pension Plan (HOOPP) commissioned Abacus Data to conduct its fifth Canadian Retirement Survey in the spring of 2023. This year’s results indicate that a prolonged period of rising inflation and interest rates , market volatility and a shortage of affordable housing has led to a significant downturn in the financial well-being of Canadian adults of all age groups, putting their retirement preparedness and financial security at risk. This discomfort is measured more in the age strata of 18-34 years and 55-64 years.
First, the young people. Half of Canadians under 35 say they live beyond their means. Not by choice, but because they are suffocated by the rising cost of living and the sharp rise in interest rates. This rate is 35% on average, across the entire sample of 2,000 participants. Among the different age groups, the youngest show the highest percentage when respondents are asked if they are affected by inflation, rising rents and the inaccessibility of home ownership. This is also the case in relation to questions relating to the cost of living and the adjustment of their income to inflation. And to those referring to their debt.
More than the other groups, 18-34 year olds emphasize that the rise in interest rates has an effect on their debt and their ability to save for retirement, while expressing concern about not being able to benefit from a pension plan in Workplace.
They are 43% to own their home. The others show the highest degree of uncertainty about the possibility of accessing the property. Of those who are homeowners, 64% say they worry about their ability to meet their current and future payments.
They are also the most likely to report relying on the sale of a home to meet their retirement needs. But also to express concern about their ability to meet their mortgage payment and, therefore, to have to modify their retirement plan.
However, this group has the highest percentage of respondents to show their optimism about their ability to maintain their quality of life, ie 46% compared to 36% for those aged 35-54 and 26% for those aged 55 and over.
Then, the pre-retirees. More likely to say they will have to delay their retirement date if inflation does not slow down, it is the 55-64 age group who show the highest rate of concern about the cost of living, 71% of them claiming to be affected, and who doubt they have enough money to retire. “Canadians approaching retirement are falling behind. Nearly half report savings of less than $5,000,” notes HOOPP. In fact, 44% have less than $5,000 in savings, 75% less than $100,000.
In this stratum, 66% are owners. Of the number, 34% say they count on the sale of their home to help them in retirement, but more than half fear that the high level of interest rates will affect their ability to sell their property.
For all survey participants, 44% of workers say they were unable to put money aside last year for their retirement, an increase of six percentage points compared to the survey of 2022. Their main fears are a growing concern about the cost of living – for 70% of respondents, up 15 percentage points from the pre-pandemic level – and the deterioration of their purchasing power – for 66 % of them, up 17 points compared to 2020.
The deterioration in the economic situation caused by aggressive monetary tightening aimed at combating inflation that remains stubbornly high is not without weighing heavily.
Strong surge in mortgage payments
Moreover, according to recent data from Statistics Canada, household credit market debt as a proportion of disposable income reached 184.5% in the first quarter of 2023, compared to 181.7% in the fourth quarter of 2022. This increase reflects both a decline in household disposable income and a continued increase in their credit market debt.
The debt service ratio, which is the total of obligatory principal and interest payments on credit market debt as a proportion of disposable income, reached 14.9%, an increase described as notable by Statistics Canada. The federal agency says this is the steepest quarterly increase since the third quarter of 2020 and an all-time high since the third quarter of 2019.
The data shows that mortgage interest payments increased by 12.6% from the fourth quarter of 2022 to the first of 2023, continuing the strong increase that began in the second quarter of 2022, when the Bank of Canada entered into the rise in its key rate. Compared to the first quarter of 2022, they increased by 69.7%.