Millennials who rent for their entire careers versus millennials who own property will have to save different amounts for retirement, according to a new report.
The 2023 Mercer Retirement Readiness Barometer has found that Canadian millennials, between 27 and 42 years old, must save 50 per cent more if they rent, than millennials who are homeowners.
In order to achieve a “reasonable income in retirement”, the report found a millennial who rents for their entire career would need to save eight times their salary in order feel ready to retire at age 68.
However, if that same millennial owned their home, they would only need to save 5.25 times their salary in order to feel ready to retire at age 65.
“Homeowners, in retirement, do not have to pay nearly as much for it,” the report reads.
“Homeownership also gives retirees flexibility, as retirees who downsize may be able to access a significant amount of money. Renters, conversely, must pay rent every month or face eviction – whether they are 25 years old or 85 years old.”
However, especially in Vancouver, the cost of living continues to rise and housing affordability continues to decline so many residents are forced to rent, making homeownership even more unaffordable if they are not able to save money every month.
“The overall ability to have a home in retirement is equity,” Jillian Kennedy with Mercer Canada told Global News.
“It also provides a level of flexibility to that person in retirement that a renter would not have. I want you to think about things like being able to sell the home and downsize, potentially being able to do reverse mortgages, rent out basements.”
The analysis was based on an assumption that the millennial worker, with a starting salary of $60,000, enjoys a total contribution of 10 per cent of their salary per month to a savings plan.
However, this could be a level of savings that is unattainable for many young workers.
The above analysis is based on Mercer retirement readiness analytics using data from proprietary Mercer databases and tools. The millennial model assumes the individual starts saving for retirement at age 25, with a starting salary of $60,000, contributing 10 per cent annually through a workplace savings program and invests in a balanced fund.
Retirement readiness is defined as a 75 per cent probability of not running out of money before death if an appropriate level of income (66 per cent of pre-retirement income for the boomer and 69 per cent for the millennial) is maintained throughout retirement (including government benefits).
SOURCE: GLOBALNEWS