Coming Storm for Baby Boomers

Posted Friday, August 26th, 2011. Filed Under Financial Empowerment

This comes from an article I found in the National Post, July 16, 2011, written by Jonathan Chevreau.

The author writes that the first wave of baby boomers will hit age 65 this year. They face what has been called the 3-D hurricane of demographics, debt and deficit.

The stats are there: by 2025 there will be 10 new retirees for each new entrant to the workforce, twice what the ratio was in 1970.

A recent poll by Canadian Imperial Bank Of Commerce found only half of Canadian Boomers aged 45 to 64 have regular savings programs in place. And a TD Waterhouse survey found 31% of retirees aged 55 to 70 are spending more than expected.

For those that didn’t save nor have the old-fashioned employer-provided defined benefit pensions will likely continue working until age 65 and some until 70, since waiting the extra 5 years, will find annual benefit paid out by Canadian Pension Plan will be 42% higher.

One option by some Canadians is a new practice called, “workampers”. That’s a contraction of “work camping”, which refers to an increasingly popular practice whereby the Baby Boomers sell their principal residences and hit the road, often in recreational vehicles. Couples or families travel across North America and work a few days or weeks at or near minimum wage and/or exchange their labour for accommodation or a place to park their RV’s.

For Workampers, home is where the RV is and the RV is parked wherever they can generate short-term cash.

Perhaps these boomers are reverting back to a time when they were carefree and lived in communes or rainbow- coloured minibuses in the 1960s.

Our government is well aware of the Boomer crunch coming. In a paper entitled: Canadian Pension Security, Adequacy and Coverage: Public Policy Challenges and the Baby Boomer GenerationThe term 3-D hurricane of demographics, debt and deficit was coined by Research Affiliates’ chief investment officer, Jason Hsu. He says, the ‘new normal’ is an extended period of lower economic return expectations for the aging and debt-ridden developed world.

Unfortunately the boomers needed to anticipate these untenable support ratios looming in their old age and saved aggressively in their working years be delaying pre-retirement consumption. But what we see differs, what we observe today is inadequate retirement savings.

Serious problems arise when countries have become so indebted that they are unable to raise debt to bail out retirees who have, by and large, undersaved, says Mr. Hsu.

In Canada versus the U.S., the Canadian Pension Plan is relatively strong and both the Liberal and NDP want to expand it. The Conservatives are not as committed to a “big CPP” beyond a modest enhancement of the system.

The feeling by some specialists is that once the interest rate moves back to their historical levels, Canadians will be able to save more, borrow less, and buy annuities with much better pay outs.

For the self-employed and workers in small businesses they made need more help setting up employer pensions resembling those enjoyed by employees in large corporations and government.

The Conservatives prefer a private-sector, market-oriented defined-contribution pension model that will be managed by the nation’s banks, fund companies and insurance companies. It’s called pooled retirement pension plan, or PRPP.

If this is the case, we as Canadians, and in particular, the Baby Boomers, need to make sure that those chosen to manage DO NOT charge their exorbitant fees. That makes me angry!

If you are about to retire you really need to sit down and see where you are at. If the Conservatives put this plan into place we will see how it impacts the Baby Boomers. In the meantime… prepare, keep on working if you need to and make smart, educated decisions.

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  1. Coming Storm for Baby Boomers | RV Travel Now on August 28th, 2011 8:10 pm

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