|The Baby Boomers’ 50th birthday 3 (Photo credit: Christchurch City Libraries)|
Jonathan Chevreau, Financial Post · Jul. 14, 2011 | Last Updated: Jul. 20, 2011 7:23 AM ET
Perhaps it’s just as well Baby Boomers enjoyed a taste of retirement when they tuned in and dropped out in the 1960s. Most have been working ever since and — apart from the exceptions who enjoy spectacular entrepreneurial success — seem fated to work well into old age.
A Canadian Imperial Bank of Commerce poll this week 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 in retirement than expected.
Those who neither save nor have old-fashioned employer-provided defined-benefit pensions seem destined to toil at least until the traditional retirement age of 65. Many may opt for 70, since by waiting the extra five years, annual benefits paid out by the Canada Pension Plan will be 42% higher.
That’s assuming you can even find a place to toil in this depressingly stagnant economy. There’s an emerging trend called “unretirement,” as practised by — here’s a term you may not yet have encountered — “workampers.” That’s a contraction of “work camping,” which refers to an increasingly popular practice whereby aging Baby Boomers sell their principal residences and hit the road, often in recreational vehicles.
Couples or families travel across America and work a few days or weeks at or near minimum wage and/or exchange their labour for a place to stay (or a place to park the RV), according to Steve Anderson, president of Arkansas-based Possibilities Workamper News.
For Workampers, home is where the RV is and the RV is parked wherever they can generate short-term cash. Jobs include gigs at parks, fisheries, amusement parks, hotels and even high-tech giants like Amazon.com.
It seems we’ve come full circle with a lifestyle similar to what the first wave of Boomers enjoyed in their youth, when they lived in communes or rainbow-coloured minibuses in the psychedelic ’60s. For movie buffs, this may conjure up Jack Nicholson’s About Schmidt, where the veteran actor plays a widowed retired actuary who hits the road in a Winnebago.
Actuaries are shrewd about pensions and retirement, which is why we’re hearing from a lot of them in the current round of pension reform debates. The focus is on impecunious Baby Boomers, judging by a 2010 Liberal white paper entitled Canadian Pension Security, Adequacy and Coverage: Public Policy Challenges and the Baby Boom Generation.
“The undeniable fact is that, over the next 20 to 30 years, Canadian pension regimes will face a perfect storm of an aging population and longer life spans,” it says.
The storm analogy is not misplaced. Many Boomers have failed to batten down the hatches in anticipation of the coming 3-D hurricane of demographics, debt and deficit. The term 3-D hurricane has been popularized by Research Affiliates’ chief investment officer, Jason Hsu. He says the ‘new normal’ is an extended period of lower economic and return expectations for the aging and debt-ridden developed world.
The height of the Boomer retirement cycle in the United States will be 2025, Hsu says, at which point there will be 10 new retirees for each new entrant to the workforce. In 1970, the ratio was closer to 5 to 1.
Boomers should have anticipated these untenable support ratios looming in their old age and saved aggressively in their working years by delaying pre-retirement consumption. But of course, “what we observe today is inadequate retirement savings.”
Hsu frets there are not enough young workers to keep pay-as-you-go Social Security (in the United States) afloat. Employer pensions and forced retirement savings should have protected workers from the demographics of aging but employers have been dismantling DB pensions while Boomers have not embraced voluntary savings as much as they should have.
As we’ve seen in France, Greece and other countries, these tensions are spilling over.
“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.”
Canada is twice blessed in having largely dodged the 2008-2009 financial crisis and in the fact the CPP was put on a firm footing in the 1990s. While partly pay-as-you-go, CPP is strong enough that in the recent election, the NDP and the Liberal Party both advocated expanding it.
However, the ruling Conservatives are not committed to a “big CPP” beyond perhaps a “modest” enhancement of the system. In an interview this week with Ted Menzies, the Minister of State (Finance), I could get no precise definition of “modest” except that it’s well below the doubling of CPP benefits some have called for.
In a recent article in this paper, the Fraser Institute’s Neil Mohindra warned against using a battering ram to swat a fly. Once interest rates move back to their higher historical levels, he believes Canadians will be able to save more, borrow less and buy annuities with much better payouts.
Still, there’s little doubt the self-employed and workers in small businesses need help setting up employer pensions resembling those enjoyed by employees in large corporations and government.
True to their roots, 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.
With a four-year electoral mandate, the Harper administration has plenty of time to implement this program and prove it’s serious about closing the retirement income gap. Whether the PRPP arrives in time to save the Boomers remains to be seen. Until then, my general advice to them is: “Don’t quit your day job.”