By Charles W. Moore
© 2000 Charles W. Moore
An indication that Canadians are living under a reality distortion field is found in the results of a Pollara poll commissioned by Southam News that found 69% of respondents opposed to following the U.S. example of raising the retirement age to 67 from 65, and two-thirds of respondents opposed to making seniors pay for some of their own health insurance.
This country's nearly 10 million baby boomers are entering the season of their lives when they will overwhelm the health care and pension systems, radially increasing expenditures while simultaneously slashing the country's tax base. By 2015, more than half of the population will be over 40 for the first time in history. By 2020 there will be eight million 70 year old Canadians -- four times today's number. By 2030, there will be nearly twice as many senior citizens, and projections suggest some 750,000 Alzheimer's Disease cases -- up from about 300,000 today. By 2040 there will be a whopping 500 percent more people over 85 than there are now.
Taking care of all those old boomers (my generation) will cost a bundle, with the tax burden falling mainly on Generation X and Generation Y folks. Or so it is thought. I'll be surprised if there isn't a tax revolt of unprecedented proportions once the Gen X and Y cohort realize they are being set up to finance the boomers' retirement.
This problem isn't going to go away by ignoring it. Drastic action must be taken to address it, and raising the retirement age to 67, while a step in the right direction, won't be nearly enough. You might say it's the least the boomers could do. It also makes sense with average life expectancies now significantly higher than they were when the age 65 retirement threshold was set.
The U.S. has raised the age for retirement benefits, to be phased over more than a quarter-century, reaching age 67 by 2027. This plan makes so much logical sense that it's difficult to imagine why it is not being popularly embraced.
While the big crunch begins about 15 years from now, there is no time to waste in preparing for it. One crucial aspect of preparation must be getting rid of government deficits and starting to pay down the mountain of accumulated debt. Money now allocated to pay interest on that debt will be badly needed to finance the boomers' retirement and health care costs.
Another associated problem is the baby boomers' pathetic level of saving for retirement, which is likely to leave many impoverished after retirement. Nearly 70 percent of Canadians are doing essentially nothing to prepare for their paycheck- less retirement years. In 1998 65 per cent of Canadians made no RRSP contribution at all. Even for the minority who did, the average Canadian RRSP contains a measly $37,000. Because of projected inflation, if you're in your 40s, you'll need an estimated $600,000 and $1,000,000 in invested assets to maintain a modest, middle-class lifestyle if you retire at 65 and live another 20 years -- even if there is still a functioning old age pension and Canada Pension Plan then, which is highly debatable.
The only chance the vast majority of boomers have of preparing adequately for retirement is by investing in the stock market, with mutual funds being the most sensible vehicle for most people. You can't get there with "safe" GICs and money market or bond funds.
But aren't stocks risky? There is definitely short term risk, but the real risk is outliving your money, which you're very likely to do invested in supposedly "safe" low-return securities like GICs. However, we're discussing 15 years till the boomers start retiring in earnest, and over any 15 year interval you choose between 1926 and 1998, the Standard & Poor 500 index of stocks has registered positive returns.
Over the past 20 years, the bellwether Dow-Jones Industrial Average has climbed from below 800 to about 11,400. Indeed, even if you had invested all your savings in a mutual fund that tracks the value of the Dow-Jones stock index on Oct. 18, 1997, the day before the stock market took its worst one-day plunge since the great crash of 1929, if you stayed in you would still be far ahead of someone who invested in "safe" GICs.
For that matter, If you had invested your savings in a portfolio of stocks similar to the Standard & Poor 500 index on the worst possible day in history -- the eve of the October 1929 crash, and resisted the temptation to sell, by 1944 (i.e.: 15 years) you would have been up by four percent on your original investment -- not a lot, but that particular 15 years included the Great Depression.
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© 2000 Charles W. Moore
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