But pension researcher Robert Brown, who has studied the impact of shifting demographics on Canada’s social security programs, says the OAS cost increases should be manageable if the economy achieves modest growth because tax revenue will also grow over that period, helping absorb much of the impact.
OAS costs are expected to rise from 2.38 per cent of Canada’s GDP in 2015 to a peak of 2.77 per cent in 2030, then fall back to 2.37 per cent of GDP by 2050 as the boomer generation dies, according to chief actuary forecasts.
“These numbers do not destroy a country – OAS is affordable,” Mr. Brown says.
The biggest current debate about retirement planning is not the fate of CPP or OAS, but how well boomers themselves will be able to finance their retirement years beyond the minimum floor of support provided by government programs.
The decline of workplace pension plans means just 24 per cent of private sector workers are now covered by a plan, leaving most people on the hook to fund their own retirements. An era of low interest rates hasn’t helped that task, as investment returns on retirement savings have been tepid for years.
“Low interest rates are only good in an economy with lots of young people looking to borrow and spend,” said Mr. Foot, the Boom, Bust & Echo author. “They’re a disaster in economies where you have boomers saving for retirement.”
The outcome will inevitably be mixed, with many boomers living comfortably and many others struggling with a far lower standard of living.
Gisele Bouvier is already struggling at age 65. She was laid off from her information technology job in the federal government at age 62 and ate through a big part of her savings as she waited to collect OAS and CPP benefits this year.
Now living on $26,000 in annual income – half of which goes toward rent on her Ottawa duplex – most optional spending like cable TV and Internet service is out of reach. She listens to a lot of radio and volunteers her free time to work with anti-poverty group Acorn, which tries to secure affordable house for low-income earners.
“I see poverty ahead of me,” she says. “You worry for the future. You live with this worry, and you say, ‘Oh well, maybe I won’t live that long.’”
University of Ottawa retirement researcher Michael Wolfson says his research suggests half of Canada’s middle-income earners will face a significant drop in their standard of living when they retire.
He worries governments are not taking a “holistic” look the issue, considering the effects on social assistance, subsidized housing, drug costs and long-term care demands when a large proportion of boomers faces financial problems in retirement.
Other researchers, however, say the effect will be less severe. A private sector study earlier this year by McKinsey & Co., for example, suggested 83 per cent of Canadians will have enough to maintain their current lifestyle in retirement. McKinsey said the groups most at risk of big drops in lifestyle are mid- to high-income earners without workplace pension plans, especially those with low savings.
Low savings levels are not an isolated problem in the boomer demographic. An Ipsos Reid survey of 12,000 Canadians in 2015 shows 49 per cent of people 55 to 64 say they have saved less than 10 per cent of their retirement target to date, while household debt levels average $71,815.
At age 56, Wayne Hassar is keenly aware of his remaining debt. The Winnipeg-based insurance analyst’s plans to retire at 60 hinge on his ability to finish paying his mortgage while ensuring he has enough saved for his two teenaged sons to go to university.
“We still have a mortgage, that’s the elephant in the room for sure. That has to be paid off or the plan will not happen,” he says.
The way forward
Some experts point out that demographic projections of doom have been overcome by innovation before. Most famously, demographer Thomas Malthus looked down the path of world population growth in the late-18th century and predicted a global famine that never happened. (The Industrial Revolution did instead.)
“What really counts is innovation, technology, the organization of business, the expansion of human capital, and the animal spirits of capitalism,” wrote author Chris Farrell in his 2014 book Unretirement: How Baby Boomers are Changing the Way We Think About Work, Community and the Good Life. “In other words, productivity trumps Malthusian demographics.”
Andrew Violi, president of Mellow Walk Footwear Inc., a Toronto-based manufacturer of safety shoes, is an example of that kind of thinking.
“When I joined the family business 10 years ago, the average age of our work force was older and our machinery more manual, requiring skilled operators,” he says. He responded by upgrading to more modern machines that “de-skill and simplify the set-up,” and by training “a new generation of shoemakers,” many of whom come from the ranks of new immigrants.
“Frankly, I was more concerned about this a few years ago,” he says.
Article by David Parkinson, Janey McFarland & Barrie McKenna for the Globe & Mail