It’s been nearly two decades since Shannon Lee Simmons started helping Canadians save for retirement, but over the past few years, she’s noticed a troubling trend: “Fewer and fewer people are ready for the future,” said the founder of The New School of Finance, a Toronto-based financial advisor firm in an interview. That may not come as a major shock, given that everything is 30 per cent more expensive today than it was a decade ago, but this lack of savings could have far-reaching implications on people’s lives, the economy and the way people work.

Canadians more broadly are worried, too. A 2024 Sun Life survey found that more than half of respondents are nervous about not having enough money to retire, while 75 per cent said the cost of living is negatively impacting their retirement savings. Another survey revealed that 95 per cent of Canadian employees know their financial situation can significantly impact their well-being and that nearly half have experienced financial stress over the past 12 months, in part because of their lack of savings.

More debt, fewer pensions

There are two key reasons why saving is becoming more difficult, in particular for the generation retiring in the next 25 years, according to Fred Vettese, former chief actuary of Morneau Shepell and author of several retirement books. The first is mortgage debt, which more people are carrying into their later years. In the first quarter of 2025, housing-related debt, of which mortgages account for 75 per cent, topped $3.07 trillion. At the same time, 43 per cent of first-time homebuyers are 35 or older. “We’ve had to put so much more money into our mortgages than we have historically, and that’s made it a lot more difficult to save for retirement,” he says. 

The second challenge is private sector pension coverage. According to Statistics Canada, in 2023, just 37.7 per cent of Canadians and 20.4 per cent of private sector employees were covered by a registered pension plan, figures that have remained relatively stable over the last twenty years. “That number doesn’t seem to be changing anytime soon,” said Vettese. “It’s going to stay there unless there is some kind of government action.” 

He’s also concerned about how much more wealth markets can create. Equities soared over the past 20 years with the S&P 500  climbing 424 per cent since January 2005, while falling yields over the past several decades boosted bond returns, too. “That game has got to stop at some point,” Vettese said. “Then the question is, where do those higher returns come from?”

Encouraging more investment

The good news? Neither Vettese nor Simmons thinks the situation is dire. “We’re not going to see people eating dog food,” Vettese urged, in part because the Canada Pension Plan (CPP) is not going away. “That’s one bright spot,” he noted, pointing out that people are paying more money into the program, which means payments will rise. “We’ll get more benefit from it than we have in the past.”

However, improvements can be made around the way businesses approach employee savings. Dave Jones, senior vice president of group retirement services at Sun Life, would like to see companies take a larger role in helping Canadians invest. The more businesses can do to alleviate people’s financial concerns, the healthier and less stressed they’ll be. “We know that people who are financially stressed are more likely to report issues from sleep disturbance, headaches, serious illnesses and heart disease,” he said. “The link is really clear.”

One place where employers that already offer plans can help is to encourage employees to take advantage of matching programs. A quarter of people don’t participate in pension matches, according to Jones, hundreds of millions of dollars on the table each year. 

More businesses should also offer plans in the first place. Setting up a plan or a group RRSP isn’t difficult to do, even for small businesses. Smaller operations may not need to offer matching, but they can at least give staff ways to save. “You have to decide for your company what you can afford to contribute, but offering the programs is a small cost overall,” said Jones. “When you think of the impact you can have on your employees’ lives, how do you make those programs available?”

Still, if the declining savings rates of Canadians are any indication, many will take a larger paycheque to spend today than set aside money for retirement through their employer. That’s why Jones would like to see the government mandate contributions to a workplace pension plan. “Auto-enrollment and auto-escalation of contributions as your salary grows over time is an important way to help people save for the future,” said Jones. “People can opt out or ratchet back. But you’ve got to let people easily take advantage of a plan.”

According to Vettesee, the government have two options: mandate pension plan enrollment or pull the plug on private sector pension plans altogether. It may be too late for auto-enrollment, which he says should have been done 60 years ago. In that case, given how few companies offer plans, something new needs to be imagined. “If the (enrollment) was zero, then the (government) wouldn’t have any place to hide,” says Vettese. “They would be forced to do something. I don’t know what they would do, but they’d have to do something.”

Working for longer

Ultimately, Canadians will be forced to work longer to cover their higher costs, Simmons said. That’s not necessarily a bad thing, given that people are living longer than ever before. “People will work in a state of semi-retirement, but they’ll do something they’re passionate about,” she said. “This idea of retiring at 65 and then living another 30 years to 95, and you’re expected to live your life working? That’s a wild idea, so as we live longer, we need to change our expectations.

Working longer will also help people get their mortgage to a more manageable point in retirement. There’s another benefit: You won’t need to draw down your savings until later in life. “Even if people are earning less money between 65 and 75, they’re not relying on their investments, so they can push that out,” she said.

The hardest part for Canadians may be resetting their expectations around retirement, but they will figure it out. “Humans are resilient, and we’re not going to fall apart,” said Simmons. “It’s just not going to look the same, and young Gen X and older millennials are the first ones to deal with this economic reality. It may be harder to get there, but we need to go into this with our eyes wide open.”

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