As Canadian baby boomers reach retirement, how many of these soon-to-be seniors are financially prepared? Born between 1946 and 1965, baby boomers make up 29% of the Canadian population. Many of them have already retired and the youngest of them will reach retirement age in the next 15 years. By 2030 22% of the Canadian population will be over 65.
Canadians are living longer due to advances in medical care and overall quality of life. While returns on stock investments have been poor over the past 12 years and many Canadians many need to work past 65, most Canadians will not fall into poverty as they reach retirement. A new McKinsey report, Building on Canada’s Strong Retirement Readiness, states that 77% of households will be able to maintain their standard of living after retirement. While this is fantastic news and puts Canada well above many other developed countries, this still leaves 23% of households at risk of falling into poverty.
It should be noted this report does not take into account the amount of income it will take seniors to live comfortably in retirement. Some seniors will be relying solely on Guaranteed Income Supplements (GIS), Old Age Security (OAS), and the Canada Pension Plan (CPP).
Who is At Risk?
Two main groups are at risk – middle-high income earners who have not planned and saved for retirement by contributing to RRSPs and personal saving accounts and low-income earners, who have not been able to contribute to RRSP or personal savings and will reply solely on their government pension. Many lower-income and middle income families have not been able to adequately save for retirement. Reasoning behind this include an increasingly consumer lifestyle, labour market inequalities, and changes in family-structure (i.e. many single-parent families).
Women are particularly vulnerable
A new study by economists Curtis and Rybczynski, 2015 found that many female baby boomers are not ready for retirement. Many baby boomer women have a higher education and entered the work force after school but took time off to raise children. This created a rising labour supply but not an increase in demand, resulting in lower wages. Low-wages and their M-shaped career pattern mean that many women have very little retirement savings. These women are left relying on their husband’s petition meaning that divorce or the death of their spouse could leave them at risk of poverty.
According to a report by the OECD, senior poverty is increasing in Canada, and the most vulnerable group are single women, especially those who are widowed or divorced.
Compared with other OECD countries Canada still has one of the lowest rates of senior poverty but there has been an increase in the past few years. The OECD explains the reason for the disparity in income levels seen in Canadian seniors –
Incomes from capital, including private pensions, represent a larger share: around 42% – well above the OECD average of 18%. As private pensions are mainly concentrated among workers with higher earnings, the growing importance of private provision in the next decades may lead to higher income inequality among the elderly (OEDC, 2013).
A report by Statistics Canada using from the new Canada Income Survey (CIS) shows that 12.1% of seniors 65 and older are living below the poverty line, the rate for single seniors is 28%.
There are significant social safety nets in place for seniors in Canada, which is great – however it is debateable whether they are sufficient to keep seniors out of poverty.
Here is a breakdone of the programs:
Guaranteed Income Supplements (GIS) – supplement available to low-income seniors
Old Age Security (OAS) – guaranteed pension paid monthly by the government to individuals over the age of 65 who meet the residency requirements. You do not need to have ever worked to receive this.
Canada Pension Plan (CPP) – Government pension plan that is contributed to by employees throughout the lifetime.
If a single individual were to receive the maximum GIS and OAS payments their monthly allowance would be - $1330.80. This is the reason 28% single seniors are living in poverty.
CARP, a seniors advocacy organization, has called on financial ministers to make policy changes that will increase retirement security and reduce pension reform.
- Creating a national supplementary Universal Pension Plan (UPP) with reliable, predictable benefits.
- Eliminate mandatory minimum withdrawals from Registered Retirement Income Funds (RRIFs).
- Replace OAS and GIS benefits that will be due to increasing OAS eligibility age.
- Support single seniors, with particular regard to older women, with an equivalent to spousal allowance for single seniors in financial need.
- Help low-income workers make pension contributions.
- Consider a national Guaranteed Minimum Income to reduce poverty and replace multiple, complex, administratively expensive welfare programs.