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What is “Ready for Retirement”?

If you trusted the media you would think that Canadians are obsessed with being able to afford to retire and that most of us are far from ready.  It also appears that the Province of Ontario believes that we are obsessed so much that they have taken it upon themselves to make sure that every worker in Ontario will be able to afford to retire and enjoy their golden years in peace and tranquility.

A new report from McKinsey has caused me to look back at the idea of retirement readiness.  When I first started this blog, one of my first commentaries in 2012 was about when people should expect to retire.  I am writing again now to tie together what I said then and what McKinsey is saying now.

As my awareness about the concept of retirement has grown in the past thirty years, it had become obvious to me that the crowd of workers who are currently 50+ years old like the pattern of earlier and earlier retirement that they have seen in the generations ahead of them.  Generous early retirement arrangements in the government and in the unionized ’30-and-out’ world has created the appearance that only a loser would work past age 60 and only an idiot would keep going past age 65.

Interestingly, over those same thirty years I have watched the cost of retirement skyrocket. Even if you ignore the cost of living today in our multi-car, 3,000 square-foot home, vacation on an island, world; the reality is that the nest-egg needed for a comfortable retirement is many times greater than it was at the end of the 1980s.  The main economic force in this whole debacle is the steady decline in interest rates that we have seen since the 90s.  It just takes a much larger sum of money invested at 2% or 3% to generate an adequate income than when interest rates were 8% or more.

But global economics is not something we control so placing the blame for our predicament on interest rates and stock markets is hardly a constructive effort.  Instead, we need to look at our own actions and the actions of our governments over time.  I have written in the past about how our Provincial governments have mishandled the regulation of defined benefit plans.  In an effort to protect the promises employers made in the past at all costs, they have ensured that employers will never make the mistake of making promises in the future.  As past promises have gotten increasingly more expensive employers have sought to reduce those promises or buy time to pay for those promises.  Sometimes companies have been forced out of business because the economics of a world that no one (and I mean no one) predicted have crushed universally the affordability of retiring at age 55 after 30 years of working.

While all this was happening, some workers saw the writing on the wall and started making other plans by saving for retirement, on their own, over and above whatever their employer (or string of employers) could or would do for them.  I am lucky that for twenty years I have been in this ‘you are on your own buddy’ camp of workers so I have no one to look to besides me.  Unfortunately, some workers were ignorant or willfully blind to what was happening in the world and now find themselves short of funds to hand in their resignation before their 65^th birthday and spend their days sipping cocktails.

So how does this tie back to McKinsey?  Here is what they are telling us:

• 83% of Canadian households are on track to maintain their standard of living in retirement
• The majority of the “unprepared” are middle-income households that aren’t saving enough
• 60% of Canadians self-report “not having enough money for retirement” even though the study concludes that only 17% should think that way

So what’s the conclusion?  First, most Canadians are better off than we think.  Second, the ones that are in trouble are for the most part not the low-income working poor that genuinely deserve our sympathy and attention.  Third, people that are unprepared have a simple tool to solve the problem – working more years (I know that if you are sick and can’t work that is an issue but I don’t think we should ask our pension system to solve a health care problem).  Fourth, if we need government to solve this problem – we don’t need it solved with the hammer of more universal pensions for all – we need something much more targeted to the minority of workers truly in need.  Fifth, we need the media to do a better job of bringing out facts rather than fuelling hysteria – which leads to worried workers – which leads to politicians trying to pacify worried workers to get votes – which leads to massive government projects that create greater debts for taxpayers – which leads to the real problem that really should worry us all.