PETER DOLEZAL: Canadian seniors facing increasing poverty levels

Canada needs a nation-wide program on financial literacy

First the statistic. Only 7.2 per cent of Canadian seniors age 65 or older are considered to fall below the poverty line. This ranks Canada 10th best among a 34-country group of advanced economies.

The concerning news is while seniors in most other countries on the list are reducing poverty levels, our seniors’ poverty rate is increasing.

It is noteworthy that Canada’s public transfer of funds to seniors represents only about 4.5 per cent of the nation’s GDP. The average of the 34 countries surveyed is 7.8 per cent of GDP.

In making these comparisons we have to recognize that they include many European countries such as Greece, Spain and Portugal, whose past profligate spending on various social programs had these countries hovering on the edge of bankruptcy and are now forced to dramatically reduce many services, including those to seniors.

It is fact nevertheless, that more of our seniors are struggling than in past decades. The phased-in adjustment to age 67 for future OAS eligibility will only exacerbate the financial struggle for some.

Can we reverse this trend? The solution lies not only with government, but also with us — current and future seniors.

In an effort to increase the ultimate benefits payable, a growing number of provincial governments are lobbying the Federal government to increase CPP contributions of both employees and employers. This however may be a misplaced effort. It cannot be a good decision to increase costs for both employees and employers in a still-fragile economy. Incomes barely keep pace with inflation and employers remain cautious in adding to their workforce. Increasing payroll costs for employers would likely lead to job losses.

We all, current and future seniors alike, either have or have had access to a broad variety of savings vehicles designed to assist in saving for retirement. These include  RRSPs, optional employer-sponsored shared-contribution retirement plans and since 2009, the innovative TFSA. Unfortunately, many in the workforce opt either to not participate or to significantly underutilize these beneficial programs.

It hardly seems logical that government should force more savings on our workforce and higher costs on employers, when the various available retirement programs already available are so significantly underutilized.

Efforts and government funds would be better focused on a concerted effort to raise financial literacy — from the youngest school child, through to the high school grad and the adult workforce.

To build an understanding from an early age of the liberating power of debt-minimization, saving, smart investing and the awesome power of compounding should do much to change people’s behavior and result in a better job of building assets in support of a comfortable future retirement.

A concentrated, nation-wide education program should lead to a much lower level of poverty levels among future seniors — more than changes or additions to existing government-sponsored retirement programs.

A recent Manulife Bank survey of Canadian homeowners with family incomes over $50,000 found that only 51 per cent expected to be debt-free by the time they retire. Other surveys have shown that more than 20 per cent of existing retirees carry some debt and that others plan to add debt during retirement.

Although many Canadians, retirees in particular, recognize that debt is a key drag on retirement lifestyle, they are not yet coping with its systematic elimination and avoidance.

Future and current seniors need to buy into the fact that although debt such as mortgages may be a necessary evil at a younger age, a major family priority must be to liquidate debt. Future seniors must also be passionate about the avoidance of all debt by the time they retire. Debt among seniors is the greatest enemy of a comfortable retirement, and very likely a huge contributor to the increasing level of poverty among retirees.

Government cannot ignore the current facts; perhaps some tweaking of the Guaranteed Income Supplement (GIS) might be appropriate — targeting those seniors most in need.

However, we, Canada’s current and future retirees, must also accept more responsibility. We must, at all ages, do a better job of managing our financial affairs so that we can enjoy a financially-comfortable retirement.

 

A retired corporate executive, enjoying post-retirement as an independent Financial Consultant (www.dolezalconsultants.ca), Peter Dolezal is the author of three books, including his most recent, The SMART CANADIAN WEALTH-BUILDER.

 

 

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