This post is of a more theoretical nature, rather than practical advice. Let us know in the comments or via e-mail if you would like more posts like this in the future.
As the public becomes more financially educated, there is bound to be a greater amount of individual investment in the stock market. After completing a financial plan for a client, we wondered if there is enough wealth for everyone to self-fund their retirement. Read on for details...
Total Wealth
There are a few ways of estimating what is "wealth". For the purpose of this argument, we will consider only equities trading on the major Canadian exchanges. The reason for this is that while collecting art of Flemish masters, or owning exotic cars may be considered part of ones wealth, these are not investments that anyone can easily make.
The World Bank has a table that lists the market capitalization of listed companies. The United States is in first place with a market capitalization of about $18.5 trillion, and Canada is in fifth with a market capitalization of about $2.0 trillion (in $US). It's likely that the total fixed income investments in each country are on the same order of magnitude.
Number of Individuals
The most recent Statistics Canada estimate of Canada's population puts it at nearly 36 million. By dividing Canada's stock market capitalization of $2 trillion by 36 million, we get about US$56,000 per person. Similarly, the United States Census Bureau estimates the US population at around 320 million. Dividing the US stock market capitalization of $18.5 trillion by 320 million, we get a very similar US$58,000 per person.
For the sake of argument, let's assume a person at retirement needs about one million US$. There are two corrections that need to be made to this value. The first is that people retire at different points in time, and some would be at the very beginning of their retirement, while others would be at the tail end of having spent their retirement wealth. Let's assume that the average person would be somewhere halfway between $0 and $1,000,000. The second correction is that a balanced portfolio would have only half of the money in equities and the other half in fixed income. Together, this means that the average stock market wealth of someone trying to save for themselves for retirement would be about $250,000.
Comparing the required savings of US$250,000 to the available investments of US$56,000 per person, it is no wonder that the vast majority of Canadians don't have enough saved for retirement. It is a luxury to be able to self-fund your retirement. Feel free to contact us for help.