The More Things Change

The More Things Change

For those of us approaching or living in retirement, it comes as no surprise that Canada is undergoing an unprecedented demographic shift. For the first time in Canada’s history, there are more people over the age of 65 than there are children under the age of 15. The very size of our cohort is creating a deluge of ideas about how to deal with people like us.

The National Institute on Ageing (NIA), a public policy and research centre based at Ryerson University in Toronto, recently released a discussion paper to provide an overview of Canada’s retirement income system. The paper identifies the challenges to improving retirement financial security and to foster discussion and build consensus for further action.

The authors of this study, senior fellow Keith Ambachtsheer and executive director at the NIA Michael Nicin, make the crucial observation that “the traditional life course milestones of getting an education, finding meaningful employment (with a high certainty of belonging to a workplace pension plan) and counting on a well-deserved retirement are fading away.

“Forty years ago, almost half of working Canadians had some form of [workplace] pension coverage. Today, only about one-third does. With fewer [workplace] pensions, putting savings toward retirement increasingly competes with the personal finance goals of owning a home, reducing household debt, and raising a family,” say the authors.

Most of us, with or without workplace pensions, are increasingly fearful about affording health services that are not universally guaranteed.  In the financial facelift section of the Globe and Mail’s Report on Business, a planner figures that “costs for dementia care in an assisted-living home range from $6,000 to $10,000 a month and that some people can survive 20 plus years after such a diagnosis.”

In the NIA paper, the authors suggest that the cost of public care in nursing homes and private homes will more than triple between now and 2050, ultimately reaching $71 billion annually. I’m not able to argue with authors Ambachtsheer and Nicin that “we’re living longer, spending more time in older age without working income, and with diminished investment return prospects. Yet, our retirement income system in broad strokes still functions on many of the assumptions that we had decades ago.”

Not surprisingly, the NIA discussion paper points to three recommendations to increase Canada’s retirement income system.

  1. Increase pension coverage through the development of attractive products for workers without workplace pension plans.
  2. Increase saving rates for middle-income earners.
  3. Increase labour force participation rates at older ages as life expectancy increases.

On the ground, 6.2 million Canadians belong to a workplace pension plan, out of a total workforce of about 19 million. Approximately two-thirds of us do not belong to an employer-based registered pension plan.

The median annual retirement income for families without a workplace pension was $31,400 in 2011, compared to $55,400 for those with a workplace pension, including OAS and the CPP public pension programs. That leaves Canadians, without a workplace pension plan, short on the savings required to enjoy their retirement. When asked by Amanda Lang on BNN Bloomberg if the Canadian Pension Plan was stable, Ambachtsheer remarked that it is. However, he favours an increase in contributions to help combat coming retirement income woes, along with older Canadians working longer and increased immigration of younger workers into the system. Today, CPP holds a $400 billion reserve.

Yet in the January RBC survey “Retirement Myths & Realities,” about 50% of pre-retirees were hopeful they’d work during retirement. Only 11% ended up doing so on a full time or part-time basis. Two reasons may be that finding work at an older age is difficult, and health concerns may limit the jobs available.

As Rob Carrick wrote in the Globe and Mail, “A clear lesson offered by the results of this survey is that very few people actually end up working in retirement, even if they planned to do so. Unless you put some effort into building a post-retirement career path, it may be hazardous to your financial planning to put too much emphasis on working past age 65.” I found that preparing for a post-retirement career before actually retiring was the key to success.

Ambachtsheer also believes that Canada must invent a new kind of collective pension program for workers employed in the gig economy, where neither CPP nor employer pension plans exist.

All the while, Canadians’ primary residences form a substantial basis of personal net worth. From 1999 to 2016, growth in the prices of personal real estate accounted for 39% of the real growth in family-owned assets.

Until Canada does implement a modernized pension plan that takes into account the longevity of its citizens while inventing a source of retirement stability for gig economy workers, Canadians, as we have for decades, can turn to our largest asset, the equity in our homes, to help support us through the retirement years.

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