Saving for Retirement Difficult

(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.

New Mortgage Rules Wise

(Aired on February 16, 2010)

It is probably a wise move for the federal government to put some new rules in place for people to qualify for a mortgage to buy a home. Some kind of mortgage affordability test is probably necessary in light of the fact that there is real concern we're taking on way more debt than we should. With the hot housing market, low interest rates and a new crop of people looking for first time homes, people have been stretching themselves to the limit. Older people, meanwhile, have been borrowing heavily against their homes.

While Finance Minister Jim Flaherty is absolutely right that we don't have a housing bubble yet, there is concern that if the economy struggles for too long, many of those with extended debt will have their feet cut out from under them. And that would be a troubling thought.

The government is facing a fine line here. They don't want to put the brakes on the fragile economic recovery, but they also must ensure that we don't let people extend themselves too far. That could create more problems down the road. And when you look at the results of a new study showing that household debt as a whole is soaring, the time has come for some restraint. Average debt climbed to $96,000 last year. That puts the debt to income ratio at 145%, the highest ever recorded. There was also a dramatic increase in late debt payments. So when you combine all those factors together, it becomes pretty clear that we need to get a better hold on our personal finances, and live more within our means.

No one is suggesting we're in a panic mode, but sometimes, as the saying goes, an ounce of prevention is worth a pound of cure.