Pensions

Will Baby Boomers outlive their savings?

Aging labour force shows importance of succession planning

Inter-generational equity a big concern for Canadians.
Inter-generational equity a big concern for Canadians.   Danielle Cameron

Canada’s largest generational cohort, the Baby Boomers, is inching closer and closer to retirement and with that reality comes many unsettling economic questions.

Born after the Second World War, this demographic wave has carried the labour force and the economy for decades and has been pivotal in the social, technological, and fiscal development of not just Canada, but every industrialized-western nation.

So, is retiring at 55 the easy answer?

“That’s not the way things are going,” said Michael Wolfson, economist and Canadian research chair at the University of Ottawa.

He said that at least half of this generation faces a significant decline in their living standards post-retirement.

Delivering a lecture called “Freedom 55, Not: Prospects for Canadians’ Retirement Incomes” at Dalhousie University on Thursday, Wolfson stressed the fact that while Canada’s largest group of workers and employers retiring presents a big challenge, it is not quite the “demo doom” many believe it to be.

Eddy Ng, professor at Dalhousie University’s Rowe School of Business, explained that, in Canada, there are two types of pensions – a defined benefits plan and a defined contributions plan. The main difference being in a defined contribution, you pay yourself and your employer will match the contribution to a varying degree. He said that more businesses and employers have begun to prefer this set-up.

Wolfson explained that it shouldn’t just be the government held responsible for the well-being of pensioners, but economists, businesses and citizens, alike. He says they must begin to revise how they’ve commonly approached succession planning and retirement options, if those retiring hope to maintain a standard of living relatively close to what they enjoyed when they were younger.

It is also true that some seniors still want to work.

While in New York this week, Prime Minister Justin Trudeau spoke on Bloomberg TV about the numerous concerns his government is trying to address when it comes to pensions and retirement age. The Liberals announced that they are reversing the eligibility for Old Age Security from 67 back to 65.

“It’s the wrong call for the economy and the wrong call for the people because at 65 years old people are still in good shape and many of them would like to continue to work,” Trudeau said on television.

“It is perfectly rational to work together to provide for ourselves,” said Wolfson. One of his main concerns was about seniors outliving their savings, as life expectancy continues to increase. He called for raising the normal pension age and stressed that inter-generational equity is needed and also feasible.

Wolfson said Canada’s gross replacement ratio in comparison to its net living standards is out-dated.

Last year, Statistics Canada released a report that found, for the first time, Canada has more people over the age of 65 than under 15 years of age. These people account for approximately 27 per cent of the population. Economists present for the discussion see some potentially serious problems with an age ratio like this.

This trend could very well mean a much smaller group of taxpaying Canadians will have to pick up the economic slack and foot the increasingly larger bill associated with the costs of sustaining a booming senior population.

As people continue to live longer, the cost of healthcare becomes ever more important – without necessary reactions to a developing concern, governments may begin to find it increasingly difficult to manage and provide adequate health and social abutment to Canada’s greying nation.