Using data from the 2014 Canadian Financial Capability Survey (CFCS), this article examines the extent to which individuals in the labour force are preparing for retirement and provides another perspective on the relationship between financial literacy and retirement planning.
- In 2014, 78% of labour market participants (employed or unemployed) aged 25 to 64 reported they were financially preparing for retirement, down from 81% in 2009. In both years, about 45% said they knew how much they needed to save for retirement.
- Between 2009 and 2014, significant reductions in retirement preparation rates were observed among some groups of labour market participants, including those aged 25 to 34 (from 75% to 66%) and those with a high school diploma or some postsecondary education (from 80% to 71%).
- In 2014, 34% of labour market participants who were preparing for retirement said that workplace pensions would be their primary source of retirement income. This compared with 31% who listed Registered Retirement Savings Plans (RRSPs) and Retirement Income Funds (RIFs), 13% who reported government pensions, 10% who reported other sources, and 12% who did not know.
- In the CFCS, respondents are administered a financial literacy quiz comprised of 14 questions. In 2014, the average score obtained by those who were preparing for retirement was 9.4 (or 67%), compared with 7.6 (or 54%) among those who were not preparing for retirement.
- Even after accounting for other demographic factors such as level of education, age and income, those with higher financial literacy scores were more likely than those with lower scores to financially prepare for retirement and know how much they needed to save.