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September 11, 2013
What do you call Canadians who save for retirement? Destitute in their old age.
Despite good intentions, Canadians are not saving enough for retirement
according to a survey conducted last month by the Bank of Montreal. Almost
one-half of baby boomers said they didn't have enough to retire on: only
one-third of the $650,000 nest egg they aimed for.
It's not just the lack of will power that makes saving a failed strategy.
Boomers find themselves sandwiched between caring for aging parents on one side
and adult children who can't find decent jobs on the other.
Boomers lost a lot of money in the Great Recession of 2008 which saw stock
market investments evaporate and returns on the remainder tumble. Those who have
retired are borrowing just to maintain lifestyles. Equifax Canada says that debt
for those over 65 increased by 6.5 per cent last year.
The prospect of Freedom 55 is looking more like Servitude 75. Respondents to the
BMO survey said that they would have to work longer before retiring and 71 per
cent said they would have to work part-time after retiring. Others hoped to
sell-off assets like collectibles, antiques, and even their homes. Some planned
to rent out parts of their homes.
It doesn't have to be that way. Despite all the bad news about pension plans or
the lack of them, well-run plans exist - - as well as the bad and ugly as 20,000
Nortel workers discovered when the company went bankrupt. They were last in a
long line of creditors who were paid off with their pension investments.
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A good pension plan must be walled-off from failed businesses where
over-paid and incompetent CEOs can't get their hands on them. A good plan
has defined-benefits so that retirees know how much they're getting and can
plan ahead, unlike defined-contribution plans in which benefits are
determined by the vagaries of the stock market.
Bigger is better -- so big that they are essentially tied to whole national
economies not mere giants like Nortel.
A superb pension plan exists - - the Canada Pension Plan. It's in a separate
pot so the government can't get its hands on it. It's big and dependable. In
2000, payouts were guaranteed until 2075 and last year forecasts got rosier
as the rate of return was a incredible 10 per cent.
The problem is that it only pays an average of $28,000 annually including
Old Age Security, not because it performs poorly but because the government
limits the amount that you can contribute.
For ideological reasons, the Harper government won't let you contribute more
to the CPP because, you see, governments shouldn't be in the business of
pension plans. Many disagree, including CIBC president Gerry McCaughey. He
told a business audience in February that Canadians should be able to
contribute more to the CPP.
Additionally, the Canadian Labour Congress, most provincial premiers, and
the Federation of Canadian Municipalities all agree that expansion of the
CPP is a good idea.
Yes, Canadians, a defined-benefit government pension plan is yours. Too bad
you can't contribute enough to keep you out of poverty.
David Charbonneau is the owner of Thompson Studio
He can be reached at
dcharbonneau13@shaw.ca
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