As if today’s soaring rental rates weren’t punishing enough, new data reveals how renting can also implicate your retirement.
More specifically, the 2023 Mercer Retirement Readiness Barometer, released Wednesday, sheds some light on the plight of Canadian millennials, saying that those who rent for their entire careers will have to save eight times their salaries in order to “comfortably retire” by the age of 68.
This assumes that millennials start saving for retirement at the age of 25, have a starting salary of $60,000, and contribute 10% annually through a workplace savings program -- which Mercer acknowledges “may be difficult to achieve for many younger workers.”
That same millennial, if they own their home, would need to save 5.25 times their salary ahead of retirement. In addition, they would be able to retire three years earlier, at the age of 65.
Broadly speaking, Mercer asserts that millennial renters will have to save around 50% more than their home-owning counterparts to be retirement ready.
As for what “retirement readiness” even means, Mercer defines it as “a 75% probability of not running out of money before death if an appropriate level of income [69% of pre-retirement income for millennials] is maintained throughout retirement, including government benefits.”
“In an environment where the cost of living continues to rise and housing affordability continues to decline, many millennials may become resigned to renting, having been permanently locked out of the market,” says a news release from the financial services consulting firm. “Compounding these retirement challenges is the issue of debt, as the rising cost of living causes consumer debt to mount, preventing many working people from saving for either a down payment or a retirement.”
For those who can afford to do so, owning a home has benefits that extend to retirement and beyond.
“Homeowners, in retirement, do not have to pay nearly as much for it,” says Mercer. “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.”