Sins of the father

I was born in the year that the most Boomers were born, and when it comes time for my twins and I to hang up our spurs, there’s no telling what the world will look like. Casting back to 14 years ago, the Canadian dollar was at 71.55 cents U.S. That’s different! Bank Prime was between 5 and 6%. That’s different! And the level of debt Canadians were carrying… oh, so very different!

Some of us still have time to get out of debt and make savings a priority before time runs out. Or we’ll have to reconcile ourselves that we will not stop working just because we’ve turned 65.
But there are also a few very important lessons in here for the generations who are following the Baby Boomers:

1. Having robust savings doesn’t count for much if you’re also walking around with a ton of debt. A Royal Bank survey found that 4 in 10 Canadians will retire with debt. I’m willing to bet, based on how delusional I’ve found people to be, that the number is higher. A subsequent survey reported in the Globe and Mail found that 62% of people plan to retire with a debt load. That’s a little more to my thinking.

The lesson: your balance sheet must balance. It’s not how much you have saved; it’s your overall net worth that really paints an accurate picture.

2. We used to aim to have our mortgages paid off by the time we swapped paycheques for retirement income. An Investors Group poll found that 56% of Canadians with a mortgage do not consider paying it off as an important factor in deciding when to retire. So more than half of us think retiring with a mortgage is now okay. Is that because we don’t have a hope of getting it paid off and we’re reconciled? If you’re living on less income, doesn’t having fewer fixed expenses just make sense?

The lesson: if you’re buying so much house that you can’t afford to pay it off during your working years, you’re setting yourself up to have a very stingy retirement.

3. If you can’t live within your means while you’re working, how the dickens are you going to do it when you’re living on a fixed income that is substantially less? Borrowing has made living beyond our means easy. Since most retirement income is predicated on receiving 30-50% less income, shouldn’t a body practice living on less so they can learn to be happy with what they have?

The lesson: You’re going to have a lot of demands on your money over your lifetime: retirement savings, educational savings for your kids, mortgage repayment. Learning to be happy with what 50-70% of your net income can buy means when you transition into retirement you won’t be assaulted by the concepts of frugality. And in the meantime, saving aggressively and paying off your mortgage means you’ll have more financial security.

The Big Lesson: Don’t make the same mistakes your parents did. Surely you’re smarter than that!