(Aired on March 30, 2010)
It probably didn't come as an surprise on the weekend to hear former Bank of Canada governor David Dodge tell us we're not getting properly prepared for retirement. Dodge told a Liberal think tank session "Middle- and upper-income Canadians now in their prime earning years are both going to have to save more and expect to retire later in life than they'd hoped to do." He said most Canadians are not financially prepared for retirement.
If the Liberals paid Dodge to speak at their conference, they certainly wasted their money. Dodge said what most of us who prepare for retirement already know.
Dodge said Canadians need to save between 10% and 22% of their pre-tax incomes each year if they save consistently for 35 years to have comfortable retirement incomes. And there are precious few who can do that. I can look all around me at my family, my friends' families, people I meet in the work environment every day, and virtually none of them are starting to save for retirement. And they're already in their mid to late 30's and beyond. To expect families these days to do that is beyond expectations.
We're being taxed to death. Costs are going out of sight. People with young children aren't in a position to save, even with both parents working. No one can afford it. And the government is not helping. Banks, who are making fortunes in profits, raised mortgage rates yesterday, at a time when a new study indicates at least 20% of people are struggling to afford the homes they're living in now, and that productivity is suffering as a result. The Bank of Canada says it's soon going to start raising interest rates, probably before the summer. That will make it even more difficult to save.
Ultimately, of course, the government is going to have to pay because senior citizens won't be able to pay the bills and the government is going to have to take care of them. It's fine to tell us we have to save more, and we probably can all cut corners to do that a bit better, but we're not going to save what we really need to. With what we're paying in taxes and charges, it's just not going to happen.
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Will the government be able to take care of all the seniors? Seniors' Benefits (Old Age Pensions and the Guaranteed Income Supplement) already make up 15% of the Federal Budget. And the first of the baby boomers turns 65 next year! What will it be in about 15 years, 30% of the budget? Add to that a much higher cost of health care due to an aging population, and you start to see we're going to be up a certain creek without a paddle. Realistically, either universal old age pensions will be repealed altogether, or they will have to start clawing back the OAS at a much lower level of income (currently clawed back at 15% after $65,000 of income)
ReplyDeleteI think all of us are going to have to examine our lifestyles, and expect less in pre-retirement and retirement. There are many voluntary savings vehicles out there, the problem is we are not saving. The government will have to institute a minimum mandatory retirement savings program, say 10% of your income between $12,000 and $52,000. You could do this by contributing to a workplace pension, to your own RRSP's, or by a payroll deduction which would go to a Canada Retirement Savings Plan (CRSP), where your contributions would accumulate in your own account but the fund would be managed by the CPP Investment Board. We have CPP taken off our paycheques without any choice in the matter, and we just know that money is not available to us for today's expenses. The same will be true of the mandatory minimum retirement savings.