Today’s retirees were born into a world of entitlement in which the employer, the union and the government provided a defined-benefit retirement plan and financial security from cradle to grave. This scene is changing fast. As Canadians age we are seeing this social safety net being dismantled. Corporations are declaring bankruptcy to avoid their obligations to the next wave of retirees. Governments want to make changes to the public retirement programs. And we probably have not seen anything yet.
The Harper Government recently began its rhetoric on the subject of making changes and reforming the Old Age Security (OAS) benefit. Supporters claim the OAS program is the yellow brick road to follow the same path as Greece. Opposition politicians claim it is an attack on defenceless and low-income seniors. Grandma will be tossed out onto the street if changes are made to OAS.
So what does all this really mean to the average Canadian? Demographics tell us that the government will be under a great strain to maintain this unfunded government program. Unlike the premium-based Canada Pension Plan, the OAS is entirely funded from the taxes we pay.
Today, the cost to Canadian taxpayers is about $40 billion per year. The first wave of the baby boom generation is about to become eligible for the OAS benefit. It is estimated that the cost to the Canadian taxpayer by 2030 will increase to about $108 billion.
The federal government has already announced that the OAS is unsustainable and in need of reforms. But they must first figure out how to communicate the changes to us. They must tell us how the reforms will work, who will be affected, and when the changes will come into effect. Until this message can be effectively communicated, the changes will have to wait.
We are not sure when or how this debate will end. We can only speculate what this means to average Canadians. There will definitely be a shift in expectations about entitlement. For many it means new financial planning skills will have to be learned and practiced. Canadians must become more self sufficient and less reliant on the government and employers for funding their retirement.
A greater dependence on personal savings will be required to fund our retirement in the future. This will require a better knowledge about investment options. Canadians will need to learn how to select investments that are appropriate from a risk and return point of view. This may mean that thrift and cautious spending will once again become commonplace, much like it was for our parents and grandparents.
The message is loud and clear. You cannot rely on the government or employers for your desired retirement lifestyle. Educate yourself or hire the help you need to put your financial plan on the right course to meet your financial needs and objectives.
The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail firstname.lastname@example.org. Mutual Funds provided through FundEX Investments Inc.