As the baby boomers get closer to retirement, it's becoming clear that many will have to abandon their dreams of freedom 55. Some of them will be lucky if they reach their freedom goal by the time they're 65. Many will have to go on working as they grow older. It's the new face of retirement and it's not just that many people will have failed to save enough to finance a retirement.
Governments around the world are now trying to persuade people to postpone their retirement and go on working to ease pressure on pension plans. The rising cost of pensions is not the only worry. Workers who produce the goods and services the economy needs are essential to economic growth and prosperity. Concern is growing that, as the baby boom generation retires, fewer workers will be available to support the growth of the economy and produce the goods and services needed by all Canadians.
A possible shortage of skilled workers is being used as the rationale for persuading boomers to go on working, although it's still not clear just how real the potential shortage is.
Canada is also being urged by international bodies such as the OECD to get rid of early retirement incentives, to abolish mandatory retirement, to take other measures to persuade people to go on working, and to raise the official age of retirement. The danger, of course, is that, if they will not do it voluntarily, older people may be forced to go on working against their will.
This could be done by raising the age of eligibility for public pension programs, as the United States and other countries have already done.
But raising the age of eligibility for public pensions, such as Old Age Security and the Canada Pension Plan, would hit hardest at lower-income elders who must rely on these programs as their major sources of retirement income. They would be forced to go on working until they qualified for benefits. Higher-income earners, who are more likely to belong to workplace pension plans or have RRSP savings, get most of their retirement income from these sources, so will always have more options and more choices about when to retire.
Ironically, perhaps, some policy-makers are now trying to depict the aging population as a golden opportunity rather than a crisis. Federal officials have said that the coming retirement of the baby boom generation, if accompanied by good social policies, may provide an opportunity to make major social and economic gains. The view now is that tomorrow's generation of older people will be skilled and potentially productive in an economy based on knowledge and services.
According to this perspective, the growth of healthy life expectancy raises the possibility of increasing both time spent in work and time spent in leisure, with gains on both economic and social fronts. Proponents of this view argue that it could eventually lead to a new definition of retirement and radical new policies that will change the way we look at the aging process.
For instance, a major federal government research project has been looking at policies that might change the way people combine work, leisure, caregiving and education over a lifetime instead of emphasizing only what policies are needed once they reach age 65. This approach, promoted as life course flexibility, is presented as giving older people more choice and greater flexibility in planning for their old age.
But the bottom line is persuading people to go on working. It may be simply sugar-coating the pill to talk about increasing choice and giving people a better range of alternatives as they grow old.
Reflecting the move to shift responsibility for retirement provision away from collective actions and programs and onto individuals, many employers are creating two-tier pension systems from which younger workers get much less generous benefits. Companies have closed their defined benefit pension plans which guarantee a pension related to earnings and years of service, often putting new hires into defined contribution plans and group RRSPs where retirement income depends on investment returns and no specific pension amount is promised.
Coverage of workplace pension plans continues to decline. Fewer than 40 per cent of Canadian workers now belong to a pension plan through their work. It seems only higher-income people can afford to save for retirement through RRSPs. Most Canadians don't contribute to RRSPs, so there is now a huge backlog of unused RRSP contribution room being carried forward. Those who have been able to save on their own may have seen the value of their retirement nest-egg undermined by stock market gyrations.
It's not surprising that so many people are no longer sure about just when they'll be able to stop working, or even if they'll ever be able to stop. And many of those who retired early are now going back to work some for financial reasons, others because they prefer to keep active. Retirement is no longer a point in time. It has become a process to go through as we grow older, and for many Canadians it will be a painful transition.
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