Retire (without) the debt

With life expectancy rising and the impulse to save declining, more and more Canadians are going to have to retire with debt.

On a sunny Saturday morning in 2041, your long-time friend and golfing buddy Bob rings your doorbell. “It’s the perfect day to play 18 holes,” he says. “Are you in?”

You’ve been itching to play for weeks, but reluctantly decline. Having overheard your conversation from the kitchen, your wife passes by, her glare deterring you from changing your mind. After all, it’s been three years since you took her on a holiday and, if you want her scowl to disappear, you had better not infuriate her by playing a round of golf on credit.

You’re out of money, or almost. When you retired a few years ago, reality hit. Your meagre retirement savings could not support the lifestyle you and your wife enjoyed over the years. Goodbye, golf. So long, vacations. Hello, reading and card games (not for money, of course).

Back to the future

This scenario may seem far-fetched, but this is what the future holds for many Canadians if we continue down our current spending path.

Did you read the article on seniors and debt my colleague David Trahair wrote in the August issue (“Seniors and Debt: Not a Good Combo”)? He reported, among other things, that the percentage of debt-ridden retirees has increased by nearly 60%, to 43% in 2012 from 27% in 1999. What’s more, seniors are piling on debt because when they retire their income drops and many end up borrowing to pay their mortgages and unsecured debts.

Much has been said about Canadians being lured to rack up debt. But the more troubling effect of debt is often ignored: the trend to save less.

If today’s seniors — who mostly resisted the lure of credit — are barely getting by, I find it hard to believe that young people, especially the buy-an-iPhone-in-12-easy-payments generation, will fare any better.

To make matters worse, we’re living longer, which means our retirement will be longer, and as a result more expensive. Someone retiring today can expect to live another 18 years. And, according to life expectancy forecasts, that number will increase to 21 years in 2056, which means we need to sock away tens of thousands of dollars more than we do.

Will governments be able to come to the rescue? I doubt it. Almost all levels of government — municipal, provincial and federal — are up to their necks in debt. They also have their share of actuarial challenges to overcome if they are to honour their promise of a comfortable retirement for their employees.

What can we do?

Unfortunately, there’s no easy solution. On the one hand, governments should ease up on taxpayers. Constantly squeezing a bit more out of citizens with new taxes and fees, as has been the trend, could make matters worse for those Canadians who are already unable to save a portion of their salary. On the other hand, there has to be a way to entice — if not force — people to save. I’m the first to admit that the idea of forced saving is a violation of our freedom. But I know full well that governments will not let people sleep in cardboard boxes come retirement. They will intervene by then, and you’ll have to pay for it. But if the choice is between compelling spendthrifts to save now and forcing savers to pay for them later, which option seems most fair to you?