The Coming Retirement Burden

The Coming Retirement Burden

This is a US article but the message and facts equally apply to Canadians.  CPP is, for the most part, a pay-as-you-go wealth distribution scheme, meaning your CPP deductions are simply transferred to a current retiree in forms of benefits.  Since 1997, a small portion is now actually invested and grown to fund the future but it is small (latest published numbers can be found in 2008-2009 CPP Financial Statements here).

In the past, there were many workers who would support a small number of retirees so small amounts taken off paycheques were sufficient.  As our population ages and enjoys greater longevity, there are fewer and fewer workings supporting an ever-growing number of seniors.  Currently, there are approximately 4.6 workers paying for each person over 65, and by 2031, there will be less than 3 workers paying for each recipient.   This would require a 53% increase in CPP premiums just to maintain the status quo!

A generational divide is growing and I think it has barely started.  The most shocking example of this growing divide was seen about three weeks ago in Japan when the government Finance Minister told the elderly to “hurry up and die” to relieve pressure on the economy.

Despite the Canadian government telling me the CPP plan is sound, I remain unconvinced.   I personally can’t see how any politician could say anything else and stay elected.  Furthermore, nobody can claim to know how future working will respond to more and more of their wages taken to support someone else.

I think the safest assumption is that – one way or another – we’ll pay higher taxes and receive lower benefits moving forward.  What seniors receive today is not likely to be what seniors receive in 10-20 year’s time.  It is not fun to think about and easy to ignore, but saving more during one’s working years is really the only plausible defense I see to this economic reality.

Excerpt from the article:

If one-third of the adult population is consuming without working, that is going to place a heavy burden on worker incomes–unless the retirees take sharp cuts to their living standards.

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