Report Paints Grim Picture for Retired Boomers

A couple of weeks ago, TD Bank released a special report about the large number of baby boomers set to retire in the next 20 years. This mass retirement, in itself, isn't news. Countless reports have been released over the past few years on the topic, and on the impact this retirement "boom" will have on our workforce and our economy.

Unlike any of the other reports, however, the TD Bank report stated that the impending labour shortage caused by the retirement boom should be manageable if government and businesses start making changes now. Because this was widely seen as good news, this part of the report received much media coverage.

What was largely missed in the media coverage, in my opinion, was the report's call for widespread pension reform, reform that it says is needed to prevent many retirees from falling into poverty. The report points to recent studies that show one in three people are at risk of not maintaining their standard of living going into retirement.

If you're set to retire in the next 20 years, then this report is talking about you, about keeping you from falling into poverty when you leave the workforce. To me, this is big news. So why aren't we talking about it?

Here's what you need to know. Seven million boomers are set to retire within the next 20 years. That's 38% of our current workforce. At the point of retirement, these boomers will stop being active employees, and will stop paying into employer-sponsored pension plans and government programs like Old Age Security (OAS) and Canada Pension Plan (CPP). Instead, they will begin drawing on these very plans and programs. Thirty-eight per cent of our workforce will be making this transition over a very short period of time.

If you're among that 38%, how does this affect you? If you're lucky, you're covered by an employer-sponsored pension plan. And if your employer-sponsored plan will cover your expenses as a retiree, you have little to worry about – as long as you don't change jobs between now and the time you retire, of course. Although it's possible for an employer-sponsored plan to run out of money (usually because of bad investment decisions), it's unlikely. At least in this country.

If you don't have an employer-sponsored plan, you're in good company. Employer-sponsored plans have been declining for years, and will continue to decline over the next 20 years. According to the TD Bank report, only 82% of public sector employees currently have employer-sponsored plans, down from more than 90% just five or six years ago. And less than 28% of us in the private sector have an employer-sponsored plan.

Without an employer-sponsored plan, you may be hoping that government programs, such as OAS and CPP, will help you get through retirement. Well, get ready for these statistics from the Government of Canada. The average CPP retirement benefit is $502.57 a month. That amount goes up slightly if you have a disability or are a surviving spouse. The average OAS benefit is $489.25 a month. So, if you were to retire today, you could expect to receive $991.82 a month, on average, from these government programs. I don't know about you, but that doesn't come close to the amount I'm used to living on. Nor does it come close to covering my monthly expenses. It's fair to say that my expenses will decrease before I retire. For example, it's likely that I will no longer be supporting my children or helping them pay for university. It's possible (although not nearly as likely) that I will have paid off my mortgage by then. Still, I can't imagine living on less than $1,000 a month.

That leaves RRSPs. We all know we need to be putting money into our RRSPs. Of course we know. And yet, the TD Bank report shows that only three in five Canadian families have RRSPs, with an average of $25,000 saved. That will top up your income for two years, if you're really lucky. If this scares you, it should. It scares me. What this report tells me is that if you want to live comfortably in retirement, you need to start saving more money for retirement. And you need to start today.

You can't control whether or not your employer offers a pension plan or how much you'll get from government plans when you retire. And you certainly can't control whether or not widespread pension reform is on the horizon. After all, a solid, well researched recommendation comes out in a report like this, and nobody's even talking about it.

However, you can control what you contribute to your RRSPs. So stop treating them like a luxury, like something that would be "nice to have" after that renovation is paid for or that vacation is taken or wherever else you're putting your money. There's a good chance you're going to live a long time after retirement. At this point, it looks like it's up to you whether or not you enjoy it.