A recent study by Mercer Canada highlights the growing divide in retirement savings between lifelong renters and homeowners. The study found that millennials who are lifelong renters will need to save 50% more than their home-owning counterparts to retire comfortably. Homeownership can provide several financial advantages, such as home price appreciation, lower shelter costs in retirement, and built-up home equity. On the other hand, renters face the burden of paying rent every month, and they do not have the same flexibility to downsize or access a significant amount of money.
The analysis was based on a starting salary of $60,000 with a 10% monthly contribution (including an employer-matching program) to a savings plan. The study found that young, lifelong renters would have to save eight times their salary to retire comfortably at age 68, while a millennial who owned a home would only need to save 5.25 times their salary and could retire three years earlier at age 65.
The study also highlights the affordability challenges faced by millennials in the housing market, with higher interest rates rippling through the economy and many would-be buyers remaining in the rental market for longer. This has led to a surge in average monthly rents, making it harder for renters to save for retirement.
To get ahead, lifelong renters need to ensure rental costs are properly factored into their budgets now and in their future retirement years. They should also take full advantage of any workplace retirement and savings programs offered, including employer matching programs. Renters could also consider working longer or delaying their Canada Pension Plan and Old Age Security benefits until age 70.
In conclusion, the study highlights the growing divide in retirement savings between renters and homeowners, with homeowners having a significant advantage. Lifelong renters need to take proactive steps to ensure they can retire comfortably and not become permanently locked out of the market.