The age bomb

Inflation stats this morning. Budget excess in the afternoon. Once the gory details are known, we’ll tell you what it means and what to do about it. Meanwhile we need to discuss the Elephant in the room.

Of all the ‘isms’ in society, only one is still acceptable. In fact, it’s everywhere. Ageism. It’s cool to dis and dismiss people just because they get old. The irony is, it happens to everyone.

Denying you’re on this journey has serious financial implications. Retirement’s long and most are unprepared. Twenty years. Maybe thirty (or more once AI steals your job). It takes a long time to get ready to retire, and apparently we’re getting worse at it. Lots of people – accountants, actuaries, advisors, bankers, economists (but not many politicians) – worry we’re headed for a retirement crisis is epic proportions.

There are five reasons that gobs of people are pooched. And they don’t yet know.

First, realize what’s going on. For decades we knew a demographic timebomb was embedded in our midst. And it’s about to blow.

Here’s an NIA report (“Perspectives on Growing Older in Canada”) that found a quarter of people over 50 – still working – don’t make enough money now to cover living expenses. Another 40% say they can get by, but set aside nothing. Obviously they’re saving zippo for the future. Meanwhile the fastest growing cohort in society is people between 75 and 79. Breathing down their necks are the 85-year-olds.

So will you have enough to live a good life between, say, sixty and eighty-five? Obviously CPP and OAS won’t do it. They were never designed to support you. And never will, unless you live frugal, cheap and denied.

It’s coming, In seven years Canada will join Japan as a ‘super aged’ society, where more than 25% of the population are seniors. Besides ballooning OAS payments so they become the greatest single expenditure of government, consider health care. Today about a fifth of the population are over 65. But these same people consumer half of all the health care. By 2040 the wrinklies will account for 71% of all health expenditures. Just imagine what they might do to personal taxes (for those still working then – today’s Millennials, Zs and Alphas).

Gulp.

A major survey by accounting firm Deloitte found 86% of people 5 to 64 are at financial risk that would see them running out of money in retirement. Of people just entering retirement, more than half (55%) have to downscale their lifestyles in order to avoid outliving their capital. These are solidly middle-class folks. They’re not in the 31% of retirees trying to live solely on government assistance. And they’re not the 14% who are ‘retirement ready’. There are only 429,000 of them in Canada, and 2.5 million who are not.

Here’s is the graphic Deloitte uses to show the sorry state of current retiring Canadians.

Source: Deloitte. Click to enlarge.

This a mess. And while we have cabinet minsters in charge of diversity and inclusion, families and children and rural economic development (plus 37 more), there’s nobody in charge of getting ready for the demographic tidal wave that will whack the economy, topple society and Hoover the treasury. So, you’re on your own.

And what is this happening?

First, we live too long. Life expectancy is headed for 84 years. It used to be that men retired at 65 and croaked two years later (the ladies lasted longer – still do). Now we need to finance decades without a paycheque.

Second, workplace pensions are fading fast. Only a third are in some kind of plan, compared with half fifty years ago. Defined benefit pensions are available mostly to government workers, while other plans are defined-contribution in nature, the bulk of which are stuffed in crappy mutual funds.

Third, we suck at retirement savings. RRSP contributions have been falling for a decade. Almost 80% of the money in TFSAs is in savings accounts, low-yield GICs or other near-cash assets – lacking the growth so clearly needed. Deloitte found a third of all working Canadians, including one in five people close to retirement age, have never saved anything for the future. Nothing.

So, fourth, it’s financial illiteracy which is endangering the years to come. Too many Canadians are labouring under the false assumption ‘the government’ will look after them in retirement, or that their living costs will plunge once they stop working, or that ‘the market’ is too scary and risky to invest in, or they’re simply unaware of how to budget, where to grow money or how to use the tools they’re given, like tax shelters.

And, yes, consuming vast amounts of income and burying millions in lifelong debt payments, is residential real estate. It is the beast feeding on retirement, when most people think it’s their only ticket out of penury.

We now owe $2.1 trillion in mortgages alone, increasing by $12.6 billion per year. Every conceivable aspect of home ownership is getting more expensive, from property tax to utilities, online connectivity, insurance, all the stuff at Home Depot and the levies, fees and commissions real estate generates. Lately the housing market has flatlined. If rates don’t fall, the economy stutters or confidence fades, Canada could easily have a housing crisis. Then what?

So, it’s choice time. You can plan on being a happy, secure old snort. Or you can be the ageist grasshopper. But nobody gets out of here alive.

About the picture: “Here is Doodles enjoying the beach side,” writes Delusional Gus. “He loves to go on self guided tours around Mystic beach BC, but not to worry, he always returns home. Thanks for your insights, after your Dr.Garth post we’ve sold the condo, maxed out the TFSA, opened a TFSA for baby girl to start compounding and will open a FHSA to purchase a house in the future. Trying our best to have a B&D and retire before 60 with the same income we have now! Rented a 3bd in Vic’s outskirts and have space, and no debt, still paying less than the condo mortgage if counting the taxes and strata. Good job, hopefully you can rescue more people.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.