Don’t count on Ottawa to fund your retirement Early in October, pension luminaries will descend on Toronto for a conference that will look at all aspects of Boomer retirement, from longevity to soaring health costs to their collective failure to save.

Don’t count on Ottawa to fund your retirement

Jonathan Chevreau, Financial Post · Saturday, Sept. 18, 2010

There seems to be an entire cottage industry built around telling Baby Boomers how they can’t afford to retire any time soon. Early in October, pension luminaries will descend on Toronto for a conference that will look at all aspects of Boomer retirement, from longevity to soaring health costs to their collective failure to save.

One of them, actuary Dr. Robert Brown, warns the spike in costs that will accompany the aging of the Boomers has barely begun. He says a proper demographic analysis shows Canadian Boomers, currently aged 44 to 59, won’t enter their high-cost years until 2016, peaking in 2031.

Other highlights of the conference hosted by the Retirement Planning Association of Canada will include sessions on senior fraud, how to avoid unseemly family fights over inheritances, even one on using comedy and magic to present retirement planning sessions.

If various books flooding the market are any indication, governments will need a major dose of magic to prepare for the coming tidal wave. And Boomers still toiling in the workplace will need a sense of humour as they try to suppress a new phenomenon I call pension envy.

That will be aimed, of course, at contemporaries who retired in their 50s with the gold-plated, annuity-like defined-benefit pension plans enjoyed by most government workers in retirement. Private-sector envy of public-sector pensions is also the focus of one session scheduled for the RPAC conference, entitled Pension Tension. According to pension expert and panelist Patrick Longhurst, there is “an alarming disparity between the pension coverage of employees working in the public and private sectors.”

The gulf between pension haves and have-nots may even spill over into social unrest in the future. A new book capitalizing on this theme is James Bacon’s Boomergeddon, an alarming prophecy of what America’s 78 million Boomers will experience as they reach the traditional retirement age of 65.

Bacon, editor of the Generational Advisor newsletter, argues U.S. social security will be broke by the year 2027. Add to that soaring health-care costs and other liabilities, he expects Uncle Sam to be so much in hock he will be forced to curtail benefits to 65% or 75% of what was promised. Even what’s salvaged will be ravaged by inflation as governments continue to resort to the printing press to postpone their fiscal problems.

Boomers should expect the retirement age to drift further into the future. The combination of curtailed benefits and rampant inflation means middle-class Boomers should not count on government for help in old age.

Financial planners already take the stance that government promises like Social Security or the Canada Pension Plan and Old Age Security should be regarded only a bonus — if they actually materialize. Individuals should focus on what they can control, and save and invest as much as possible to achieve financial independence.

However, those that succeed will likely experience a still greater tax hit in order to bail out impoverished Boomers who failed to save. A feature story in the October issue of Atlantic Magazine advocates just that. Entitled, “The Least We Can Do: Boomers’ Last Chance,” the article suggests that before they head for that giant Woodstock in the sky, Boomers should take a tax hit in order to help their children deal with all these problems.

My own take is that Boomers should just keep working as long as possible. Indeed, Bacon says Boomers have already concluded they will have to work about four years longer than their parents did. Even that may not mean they will be prepared for retirement, which he defines as having the financial wherewithal to replace at least 70% of the income enjoyed while working.

Bacon sensibly suggests Boomers should embrace what I call “guerrilla frugality” — downsize their homes, get rid of stuff, cut transportation and entertainment costs and try to save and invest as much as possible. I encapsulate this philosophy with a simple slogan: Freedom, Not Stuff!  
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