Get notions of early retirement out of your head. For most of us it’s a dream that can’t come true.
With a rapidly aging population, we are going to have to rethink our whole notion of retirement at 65.
It makes sense when only 15 per cent or less of the population is “elderly.” But with the proportion of seniors heading towards 25 per cent during the next couple of decades, can we afford to see all that talent drain from the labor pool so rapidly?
Will a decreasing proportion of workers be able to pay the increase in health care and other government bills? Who will keep the economy afloat?
Today, car manufacturers in Japan, Europe and the U.S. are reaching a crisis due to unfunded pension liabilities. American steel producers have recently begged for protection, which U.S. President George W. Bush has granted, because they can no longer afford the rich pension packages they handed out over the past few decades.
This trend is part of a global problem for developed nations. The Wall Street Journal reported recently that unfunded pension liabilities (in the U.S.) for private companies mushroomed from $26 billion in 2000 to $111 billion in 2001. With market declines in 2002, those deficits are climbing.
Many large North American corporations are seeking bankruptcy protection to escape these pressures, steel producers being the most prominent.
While the United States has a pension insurance system called U.S. Pension Benefit Guaranty Corp., that safety net leaves retired people with less than their original pension would have granted them.
It can also hurt responsible companies at the expense of the irresponsible ones, through stiff premiums and administrative headaches.
Ontario has a similar program, which ran into trouble thanks to Algoma Steel’s reorganization. Alberta has no such “safety net.”
What these examples illustrate is that retirement is expensive and getting costlier. Even the Canada Pension planners have recognized the crisis.
Unfortunately, the Liberal solution has been to exact some hefty tolls to cover the liabilities. For workers, 10 per cent of pensionable income will be going towards CPP soon. In return, young people today will likely see only a fraction of their CPP contributions returned as pension benefits.
It’s a bum rap, partly caused by extra-long and healthy lives. In 1930, life expectancy was only 61 years. Today it’s about 80.
If unions, governments and corporate bosses fail to manage this fearsome pension tide, it will wash over them through bankruptcy and insolvency.
Even Canada’s Old Age Security and Guaranteed Income Supplement for seniors, both of which help seniors who have the least savings, are beginning to look self-defeating. They recently attracted the attention of the National Bureau of Economic Research (NBER) in the United States, which blames Canada’s income security scheme for literally driving our elders into retirement.
An NBER report from June of this year concludes that “the substantial reduction in the work participation of older Canadians is a trend creating fiscal concern . . . There are large disincentives to work in this system.”
Seniors lose benefits if they earn money so, the report concludes, the Government of Canada is essentially paying seniors not to work – increasing Canada’s tax burden while decreasing its tax base.
There is a better way. People must be encouraged to gradually phase out their work, and work as long as possible.
But the opposite is happening. Healthier, more longer-lived employees than ever are retiring at a median age of 57.2 in the public sector. Workers are quitting the private sector at age 61.3, and self-employed individuals retire at age 64.7 on average.
In the mid-1970s, the median in all categories was approximately age 65. For 55- to 64-year-old men, workplace participation has decreased from 87% in 1960, to 61% in the 1990s.
With the baby boomers hitting early retirement age, the incentives to reverse this trend have now begun, without any government help. The stock market is leading the way. Also, corporate pension-fund bankruptcies are growing.
These are the natural consequences of poor retirement planning.
As of 2000, Statistics Canada reports that roughly 14 per cent of Canada’s population is above age 65. That’s a manageable number of old folks for the rest of us to provide with services.
However, Statistics Canada indicates seniors could comprise 20 per cent of our nation’s population in 25 years, and 25 per cent in 50 years (these forecasts depend on factors like immigration and birth rate, which now stands around only 1.52 births per woman).
Demographic shifts like this have a way of working themselves out.
When too many people pull themselves out of the stock market, it crashes. When they withdraw from the labour force, upward pressure on wages entices them back to work. Unfortunately, those same pressures will make it difficult for people on fixed or limited incomes, such as invalids or senior citizens, to get services at a reasonable cost.
Automation systems, self-service options, or foregoing service altogether will be the only alternatives for seniors caught in that squeeze.
Retirement promises to be a painful time for many of us.
As David Baxter, the well-respected demographer from Vancouver has said: “As many institutions are deeply resistant to change, we must be prepared for a prolonged period of turmoil in labour markets while these changes occur.”
For workers, we should strive to go where our skills are best used and developed long-term. For employers, now is the time to automate and trim wherever possible. At risk is the vibrancy of our whole economy.
It’s a law of nature that only the richest, or people closest to death, are in a position to throw in the towel with work. The rest of us will have to provide them with services. The baby-boomer parents have had enough children to defy this rule. But the boomers themselves have not.
We can’t expect the Canada Pension Plan, which now relies on the stock market, or Old Age Security, which relies on a solid tax base, to be there for us. We’ll have to figure this out for ourselves.
The official government line is that the waves won’t be as big as I am saying.
But judge for yourself. I say, if retirement is in your plans, you had better figure out a long-term way to navigate a turbulent sea.
