Tuesday, July 17, 2007


Canadians worry about outliving their savings
Toronto Star
About one-third of people over 60 fear they will run out of money after retirement, new poll says
Jul 16, 2007 04:30 AM
Gregory Bonnell

One-third of Canada's senior and near-senior citizens are worried they'll outlive their bank accounts, and half of those over 60 holding jobs say they're working because they need the money, a poll suggests as a record number of Canadians face the so-called golden years.

If projections hold true, tomorrow's census release on aging will reveal seniors, specifically those older than 80, to be the fastest growing segment of Canada's population. That trend will only grow in coming years, with the first of that demographic population bulge known as baby boomers having just recently turned 60.

So, what's on the mind of Canadian seniors? Finances, health and their continued independence, according to the poll by Decima Research provided exclusively to Canadian Press. While 44 per cent of respondents 60 and older said they were not worried about outliving their resources and assets, 33 per cent said they were.

When asked to agree or disagree with the statement: I have to work for financial reasons, 32 per cent agreed while 21 per cent strongly agreed. One-third of respondents 60 and older said they were working either part- or full-time. Nineteen per cent indicated that their financial situation was worse or much worse than five years ago. "The truth of the matter is, a lot of baby boomers and wartime babies have not adequately prepared for retirement," said Bill Gleberzon, spokesperson for CARP, Canada's Association for the 50 Plus. "Many of them, if you look at the amount they have actually stored away in their RSPs, among those who have RSPs ... the amounts are around $60,000. That's not going to get you through 30 or 40 years of your life after you retire."

Roughly 3.4 million Canadians were 65 or older in 2006, making up 13.3 per cent of the population, according to projections published by Statistics Canada last fall. An additional 1.6 million people were five years or less away from 65, and there were almost 1.2 million people 80 or older.

The first of the boomers, the generation born between 1947 and 1966, are turning 60 this year. While they're regarded as the most affluent group in Canadian history, society can expect to see an economic "division of the baby boom," said professor Doug Owram of the University of British Columbia. "There's going to be a group of baby boomers for whom all of this image of affluence and consumption isn't reality," said Owram.

One poll question that elicited a unified response from the majority of respondents centred on the worry they could lose their independence as they age. Fifty-four per cent agreed that was a concern. Some 23 per cent neither agreed nor disagreed; 21 per cent said they weren't worried about losing their independence. The Decima Research poll's results were based on 4,000 online respondents, aged 42 and over, conducted from March 25 to April 22, considered accurate to 1.6 percentage points, 9.5 times out of 10.

We heard for years about how our population is getting older. That means the average age of Canadian residents has been increasing over the past several years.

There are many reasons for this: people having less children, older people living longer, etc. We hear so much hyperbole and rhetoric from the financial services industry about investments and long-term financial security. One commercial in mind is for Ameriprise, which is targeted towards the first wave of baby boomers who are preparing to retire in the next few years. Planners use a dream book, where couples can plan what they can do in their golden years and their financial planners will ostensibly make it possible.

When people speak about baby boomers, they refer to them as marketing targets, potential customers and folks with deep pockets. While it is true that a portion of the Baby Boom will retire well, this is only because of the social programs, job security and company pension plans that were available to them since the 1970's. During "their days", as one might call it, people got jobs, worked up the corporate ladder and held on to their jobs for the majority of their lives. The company provided health benefits, disability benefits (if they become ill before 65) and some type of defined benefit pension plan. In addition to the defined benefit pension plan, these folks also paid into CPP for most of their lives, which means the government will top up their company pension as well with at least another $1,200 - $1,500, depending on their highest earning years. Also, as these people were part of the more secure labour force, they likely had some money to put away for retirement, especially as their children left home and their mortgages got paid off.

Governments - who only think about their short-term political futures - have not done a damned thing about the volcanic explosion of elder poverty that is slowly creeping up the ladder as our population ages even more. Those retiring now benefited from strong social programs and job security of the 1970's - they hailed from a period of time when employers felt they owed some loyalty to their employees. We are now seeing 30 and 40 years into the past as the most wealthy among the Baby Boomers are able to retire.

What about the volcano? For the rest of the Baby Boomers that started their working lives in the mid to late 1980's, their career paths will be very different. People in what I often refer to as the "second half" of the Baby Boom have not held a job for more than a few years at a time, often changing employers and career choices along the way to find an employer who is willing to pay them more, offer more benefits and provide greater incentives. Company pensions are not designed for "job hoppers", as the term is often used. Benefits may still be available to a declining segment of the working population, but it is said that today - less than 30% of all companies even offer pension plans for their employees and among those that do, plans appear to be shifting away from defined benefit plans to shared RRSP contributions that can be locked in until retirement.

What about the rest of us that don't work for companies that provide any kind of pension? We are told to SAVE our money - put away ten percent of your earnings each year into an RRSP or some other retirement planning instrument. Many financial analysts are now becoming extremely critical and blaming of Canadians because it seems they are seeing the upcoming volcano of elder poverty, except they blame the poor for it. We didn't save enough money for our retirement, they say. We didn't manage our money very well.

This always brings up the odd scenario I presented a few years ago to a group of people on the myths of poverty, particularly around the idea that the poor are poor because they don't manage their money properly. I can't even repeat that scenario today because when I did these presentations, the "poor" of those days had 40% more to work with than they do today. I can't even get to the word "go" with people in receipt of Ontario Works. First, our government theoretically wants people to only use Ontario Works as a resource of last resort - which means people have to spend themselves almost completely down to nothing before they can even become eligible for what meagre benefits Ontario Works offers. One resource such people are forced to divest themselves of is any retirement savings they might have, as long as it is not locked-in. That means, people in need must spend down their entire nest egg, plus pay substantial withdrawal penalties and taxes while doing so before the state will cough up its meagre support of $536 a month! I don't even know how people can obtain a room on this amount, let alone an apartment -- and our city's fathers point too much to an alleged growing problem with homelessness. Instead of dealing with the poverty that leads to homelessness, all politicians want to do is make the homeless disappear.

Draining one's retirement account is also a pre-requisite for those who must qualify for ODSP as well. People often believe that those who built up a significant work history wouldn't have to turn to this route because CPP has its own pension plan that pays out regardless of how many assets you have. CPP also pays out even if you are married to a millionnaire, so they actually believe working people should have no trouble getting CPP Disability. I am not bragging, but I know I *do* have a great track record for winning CPP-based appeals - BUT I also know that I only take on CPP cases that have a chance of winning. For ODSP, I am less picky because their "definition of disability" is not as strict as the terms set out for CPP Disability.

CPP Disability only pays if you can prove that you had a severe and prolonged mental or physical disability at the time of your Minimum Qualifying Period (meaning a certain period of time must have passed first *after* you stopped contributing to the program). Severe means that one is not able to regularly work in a remunerative way due to a mental or physical disability. If you can regularly contribute 4 - 6 hours a week for example, you do not qualify. Further, your disability must be prolonged meaning it will last a substantial period of time or result in death. Basically, CPP only pays if you cannot hold down a "regular" job and it is likely your disability will last a long time, perhaps for the rest of your life (or for an "indefinite" period of time). The disability can be cyclic, meaning sometimes it gets worse and other times, it gets better; however, the "better" periods should not be regular and predictable or last long enough for a person to reinstate themselves into a paid job - even for a short time, such as a year. I've won cases for clients on this criteria, but in order to know why I won, you need to know the clients. None of them will likely work again. Most are incapacitated by their disabilities to such an extent that even personal care and community living is hindered. They suffer from chronic pain, have lost their sight or their hearing, can no longer walk unassisted, require some forms of personal care, etc. All this - for a lousy $900+ a month ... and most of my clients do not even get NEAR this maximum!

However, it goes without saying that one of the fringe benefits for my clients that DO get CPP Disability is that the years they receive it are not "counted" for the purposes of calculating their CPP Retirement Pension, so they may get a little more that way. However, most people with disabilities do not qualify for CPP - most end up on provincial ODSP or even worse, many can't even get their act together enough to jump through the seventeen hoops required to get ODSP - so they get stuck on Ontario Works. Both Ontario Works and Ontario Disability Support Program do not allow its recipients to retain any retirement pensions unless they are locked in. That means it is more than likely they will retire very poor. Even if somebody could manage to save money while on ODSP (and somebody yet has to show me how they can do that these days), they are not allowed to save more than $5,000 (or they lose their ODSP) or if they are a family, $7,000 + $500 per additional dependent. That means if you are part of a couple and have two children, your family can only have $8,000 at any given time in "liquid assets". Retirement savings, including those in RRSPs and most other instruments are considered to be "liquid assets".

How about other people who work? As stated above, people are changing jobs more often. It is often said that not only do people change jobs, they may even change entire career areas several times in their working life. It is known that not only are less employers apt to provide a retirement pension to its staff, they are likely to pay people less and offer fewer benefits. It is said that one in four workers works in a non-standard job; that is, self-employed, independent contractor, short-term employment, etc. These jobs are not stable and do not usually offer any benefits or security. Jobs outside the one in four are also becoming less stable. Higher-paid manufacturing, research and resource development jobs have been disappearing in droves, only to be replaced by jobs in the service sector that pay less than half as much and offer little to no job security. Despite the fact the average wage has declined since even the early 1990's, prices have substantially jumped since then. It puzzles me how one is supposed to work in one (or two or three) of these low-paid jobs and still have money left to put away for retirement after housing, transportation and groceries are paid for.

In addition to this reality, there is a growing reality for young people trying to enter the paid labour force. It is said that in ten years, 70% of all jobs will require a post-secondary education. Young people attempt to seek post-secondary education more than they did in the past; however, most graduates end up with substantial debt burdens that are not unlike a mortgage, except with higher interest rates. Interest relief programs have been cut and private collection agencies have been contracted to collect defaulted loan payments from defaulters. It is said that more than one in four students ends up in collections. What does all this have to do with retirement? Young people have no money to put away. They need to pay off their student loans, get settled to live on their own and obtain their first job (which is becoming more and more difficult for anybody, apparently). More young people are postponing leaving their homes of origin, living with their parents well into their thirties ... as they shift from job to job until they find that right job that will support them.

In non-metropolitan areas, young people need to finance and obtain their own vehicles if they expect to find a job that pays more than minimum wages. The price for a vehicle can exceed $7,000 per annum - especially for younger people who tend to be hit with higher insurance premiums and higher financing fees. How can a young person who is busy trying to make enough money to survive, let alone pay off student loans and cover the costs of owning and maintaining a vehicle, be expected to put away 10% of their earnings for retirement? They postpone marriage so they can pay the rent. They postpone having children, so they can possibly own a home someday. A mortgage is yet another expense people take on that take twenty years to pay off ... if at all. Studies show many people are taking out second and third mortgages to manage what used to be quite an affordable lifestyle. None of these people will put away a dime for RRSPs, at least until their kids have left home (which as I said is getting to be later and later), the mortgage is paid off and other debts are paid down ... by then, many of these people are probably ready to retire anyways - but they have NO money!

I think this is something we should all worry about. The number of working people per retired person is decreasing as time goes on. It is not likely that the tax base will be as solid as it is now with the first wave of the wealthy Baby Boomers retiring. We can allow tons more immigration, but studies have shown that even that is not going to reverse this demographic deficit. Governments must plan NOW to put away a portion of the surpluses it currently takes in to use for future retirement incomes for the less wealthy retired. Government pensions many need to be clawed back for those who make a certain amount from other sources to allow lower income retirees to keep more of their incomes. Work should always be a choice for the retired, not a necessity as 50% of those interviewed for the above study indicated. The idea that a very large number of people may be forced to work at menial jobs until they are one foot in the grave is very real.

It is not because we are not saving enough. It is because we have less money to save. If the government wants us to have more kids, why are they making it so expensive and impossible for many people to do so? I have two kids myself and I can tell you they will not even have the opportunities I had (which were also few and far between), so I can't even imagine what retirement is going to be like for them -- if there will be such a thing when they get to be that age. There are MAJOR things the government must do NOW to protect itself from this growing and inevitable volcano. These steps include:

1. Setting aside a portion of its surplus into stable investments to be tiered instruments to pay for pensions of people in the future who are unable to draw more than the poverty line;

2, Reduce government pensions for those whose investments or private pensions bring them past a certain level of privilege;

3. Mandate employers to provide some form of portable pension instrument to its employees and allow these employees to lock the pension funds in if they change jobs (but take it with them);

4. Allow older people to continue working for as long as they desire to - but take steps to make sure that older persons that wish to continue working are not mired in prejudice. Earnings past one's "official" retirement age should not impact on government pensions, provided one's income is still below a certain amount;

5. Review the labour market and try to find ways to ensure that jobs pay wages that keep up with the cost of living and do not leave people destitute;

6. For people whose work opportunities are limited by disability, family responsibilities and other situations, the social safety net needs to be restored so people are not left destitute by an illness or the need to care for somebody else;

7. Examine the prospect of a negative income tax to use as a redistribution instrument;

8. Increase taxes on wealth and inheritances worth more than a certain amount;

9. Post-secondary education should cost less and not become a major financial burden for young adults; and

10. Better and more effective programs to help employment disadvantaged people get into meaningful jobs should be in place and accessible to everybody that needs this assistance. It should not just serve the low-range, entry-level seeking population.

Until we see MAJOR structural changes in both the labour market and the social safety net, we are going to face the inevitable "poverty bust" of the second half of the Baby Boomer generation that inevitably arrive at retirement's door empty-handed?