People with financial advisors save more, which improves retirement readiness and increases economic potential
OTTAWA, Sept. 22, 2014 /CNW/ - Higher savings levels would boost Canada's economic potential over the long term as well as making Canadians better prepared financially for retirement, according to a Conference Board of Canada report released today.
"The financial readiness of Canadians entering retirement is worrying, given evidence that suggests many individuals are not saving enough for their future after they leave the workforce," said Pedro Antunes, Deputy Chief Economist.
- Higher savings boost long-term economic growth as well as preparing individuals for a more secure retirement.
- Households with a financial advisor are more disciplined and accumulate higher savings than those without.
- An increase in the number of households using advisors could boost the size of the economy by more than $2 billion by 2060.
A 2012 Center for Interuniversity Research and Analysis of Organizations (CIRANO) report found that households with a financial advisor are more disciplined and accumulate higher savings than unadvised households.
"By helping individuals have the discipline to save more of their income, a financial advisor is able to increase savings rates. Higher savings will help Canadians generate adequate retirement income, and increase the funds available to reinvest in the economy," Mr. Antunes said.
To assess the impacts of an increase in aggregate household savings, The Conference Board made the assumption that 10 per cent of individuals who are unadvised today would get a financial advisor, and increase their savings to the higher rates of those who do receive financial advice.
In addition to helping better prepare Canadians for retirement, the report suggests that at least a portion of these additional savings will be invested in Canada. This investment, over time, helps increase economic potential, which translates into additional profits, wages and tax revenues. Thus, an increase in domestic savings can have far-reaching long-term implications on our economy through its ability to lift investment and income.
Results from this hypothetical scenario show that:
- A larger stock of savings is accumulated, resulting in increased investment income available to retirees, thus improving Canadians' financial readiness for retirement.
- Real gross domestic product (GDP) is lower for the first few years of the forecast as the higher rate of savings cuts into consumer spending.
- Real GDP impacts are positive in the long term thanks to increased investment. By 2060, real GDP is $2.3 billion above the base-case scenario due to a lift in productive capacity and higher consumption as accumulated savings are withdrawn during retirement.
- Potential output is higher over the long term, representing a permanent increase in income and profits in the economy.
Watch Pedro Antunes discuss the role of financial advisors in increasing retirement readiness and the implications for the economy.
The research, published in Boosting Retirement Readiness and the Economy Through Financial Advice, was financially supported by the Investment Funds Institute of Canada (IFIC).
SOURCE: Conference Board of Canada
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