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Canadians may soon need to rethink how much money they need to save for retirement.
Question:
What do you think about the idea of increasing the age on OAS to 67 years old?
Answer:
This is yet another sign that Canadians need to plan for themselves when it comes to funding their retirement. Certainly CPP and Old Age Security will continue to be a key part of the safety net for seniors. But looking ahead to the future, it is abundantly clear that we need to rethink what that net will actually cover.
One of the most important lessons of personal finance is to live within your means. And governments need to do that too. The aging population is going to lead to a huge increase in expenditures that will not be offset by a comparable rise in revenues. This means that changes to how taxpayers support seniors are both probable and necessary.
These moves will be deeply unpopular, even among those who won’t feel the sting, namely today’s seniors. Economists predict that changes would be accompanied by a long phase in period, so the people really affected are not the retirees of today, but the retirees of 10-20 years from now. For these people, there is still time to make changes to improve cash flow, either by increasing income or cutting expenses.
Cash flow and retirement savings are areas that individuals have some control over, barring extenuating circumstances like serious illness. We have much less control over how much we will need to access health care services, another cost centre that is set to balloon. Tough choices will have to be made on where scarce dollars go. On balance, I’m more concerned about health care than OAS.
We need to focus more on ensuring that Canadians increase the amount they save for retirement. Any changes to OAS need to be accompanied by a clear plan to support that goal. We are not doing nearly enough in this area in terms of financial education and tax incentives, especially in the lower brackets.
The bottom line is that Canadians need to trade some comfort now for security in the future. Let’s hope the debate about OAS increases awareness about the need for a mindset change about retirement savings.
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