The recent federal fall economic statement once again reminds Canadians that previous governments never worked out how to pay for the healthy retirement of baby boomers. Studies note that when boomers came of age as young adults, there were seven working-age residents for every retiree. Now in retirement, boomers want the same or better supports when there are just three workers to pay for every person over age 65. The economic update reports some $150-billion (Can) in new spending on retirees between now and 2028, with possibly many billions more to follow. These monies will drive up tax payments from younger people for today’s retirees well beyond what those retirees paid toward seniors when they were young. Needless-to-say, organizations representing the interests of younger workers, such as Generation Squeeze, are not at all happy with the lack of alternative funding in support of younger Canadians. In addition, all this means that deficits are increasing, and eventually someone will have to pay for the ongoing increases in our debt load.
Yes there are more monies in the budget to lower child-care expenses and to assist in improving the housing market for potential buyers, but both are a somewhat late in happening. The mood among younger generations isn’t all that great. They view, and perhaps understandably, that boomers have been given greater advantages when it comes to retirement. Canadian seniors have access to a reasonably good social security system, much of it provided through public pension plans and a progressive taxation system supporting the elderly. In addition, Canada has a universal health care system which provides affordable health care for an aging population.
Younger workers are faced with fewer private pension plans, which unlike the boomers makes up a major part of their retirement income. While defined pension plans are ubiquitous in the Canadian public sector, in the private sector barely one in five employees is covered according to a 2016 study. Most past private sector pension plans, where they exist, employ a defined contribution plan. Increasingly, today’s defined contribution plans require that employees invest their contributions in financial markets and incur the risk as to the value of their individual investments. Defined benefit plans on the other hand were built up within the employer-provided plan and more-or-less guaranteed an annual pension payment upon retirement as long as the person lives. Furthermore, investment risks associated with defined benefit plans are shared among employees and employers.
Today, younger workers are also affected by past lower compensation in comparison with the increasing cost of living. Putting monies aside as part of building up a retirement nest egg has now become more important than ever. Even if a Canadian retires at 65 — the age an individual is eligible for the Canada Pension Plan — and lives until 90, they will effectively need to live off savings for another 25 years of their life, a prospect for which many are not prepared. For whatever reason, many younger workers are not in a position to put away a proportion of their income towards future retirement, even though there are government taxation schemes which allow for annual contributions such as the Registered Retirement Savings Plan (RRSP) which offers equivalent tax credits. For many workers without employer pension plans, RRSPs often represent the only means of financial planning for retirement. For lower income groups, even setting aside monies for RRSPs can be difficult if not impossible.
According to Statistics Canada, today the average Canadian will live until age 82, with the number of centenarians — those reaching the age of 100 — continuing to grow. In 2019, the World Economic Forum suggested that Canadians on average will outlive their retirement savings by more than 10 years. Over more prosperous years, today’s boomers have been able to build up their wealth, housing being a major part of that wealth. Their children may in some cases be forced to wait for access to that wealth in order to afford housing or prepare for their eventual retirement. As a result, they will most likely have to wait for their inheritance for some time to come given the projected longer life span of today’s boomers. No wonder the younger generation isn’t too happy about their current situation and envy older generations!
FROLITICKS 