Freedom 85?

Many Canadians are already ill-prepared for retirement, and that is with our current life expectancy. What happens when people live past 100?

Half of the children born in Canada in 2007 can expect to live to 104 years old. Reread this sentence carefully and think about its financial implications. This is what the World Economic Forum did. In partnership with consulting firm Mercer, it published a landmark study.

Over the past 60 years, life expectancy has increased dramatically. On average, it has been increasing by one year every five years. That is the good news. The bad news is that collectively we will need to find ways to financially support such a long life.

According to the study, increased life expectancy combined with low long-term investment returns will cause a global retirement savings gap of more than $540 trillion by 2050. The gap refers to what retirees will be missing in order to receive a retirement income equivalent to 70% of their annual pre-retirement income, even taking into consideration public pension plans, company pension plans and personal savings.

Six countries (the US, Japan, the UK, the Netherlands, Australia and Canada) share, so to speak, more than half of this shortfall.

WORK LONGER

The crux of the matter is that the population aged 65 and over will increase to 2.1 billion in 2050 from 600 million in 2017. Since the working-age population is not growing at the same rate, we will find ourselves in a situation where the number of pension-plan contributors will decrease, while the number of beneficiaries will increase, putting enormous pressure on public pension plans.

In Canada, we are walking a fine line. While former prime minister Stephen Harper demonstrated political courage by raising the entitlement age for the Old Age Security pension to 67, Prime Minister Justin Trudeau, in a vote-catching move, decided to bring it back to 65. And yet, the Conservatives’ unpopular decision was rather timid given the scope of the challenge and was not set to come into effect until 2023. What’s even more absurd is that the retirement age of 65 was set almost 50 years ago, when life expectancy was 72.

Unless, for example, you have a defined benefit pension plan from the government or a major company, you will have to put a lot of money into your RRSP for old age.

We have often talked about saving the token $1 million to enjoy a wonderful retirement of 20 years. But what if it lasts twice as long? Unless you have saved a small fortune, retirement at 60 or 65 will be a distant dream. Many Canadians are already ill-prepared for retirement, and that is with our current life expectancy. According to Statistics Canada, annual RRSP contributions by Canadians aged 25 to 54 dropped by 16% from 2000 to 2013.

The advice that the authors of the study are giving to politicians is to immediately find ways to encourage a job market for older workers so that they can continue working as long as possible.

While this is a potential option for many workers — although robotization is increasingly threatening tertiary jobs — it is much more difficult for those in manual or physical jobs. Despite medical and pharmaceutical developments, and until we find the fountain of youth, people will not be feeling as spry at 65 as they did at 25.

In short, summer is over and it is high time that we all got in touch with our inner worker bee.