The Perils of Retiring

Everyone knows that populations in developed countries are aging. Demographers were discussing this issue 30 years ago but now the reality has finally hit home. The baby boomers who revelled in the 60s when they were teenagers are now about to retire. Millions of them.

Baby boomers represent the new focus in the financial services industry. There’s one very good reason why: money. According to one of Canada’s leading financial institutions, the Canadian Imperial Bank of Commerce, Canadian boomers are in line to receive roughly 750 billion dollars through inheritances from their parents and other relatives.

This appears to solve a big problem for those about to retire and who don’t have enough saved for their retirement. But what about the many millions who have no family members with estates? Those folks could be in trouble.

The same bank that talks about inheritances also reports that Canadians between 50 and 59 are planning on working at least part-time during their so-called retirement years.

In other words, they need the money.

Since the global financial meltdown in 2007-2008, people have struggled to achieve reliable returns on their hard-earned money. Even high single digit returns have been hard to come by since 2015. Another problem is income. More and more folks are seeing little or no increase in their disposable incomes – and that’s where most retirement savings come from. Combine this with lower and unpredictable investment returns and the path to a successful retirement narrows considerably.

Finally, people are living longer, although not without health issues. There is a very real chance that many will outlive their money. That will create a cascading effect within families where the children will end up looking after their aging parents; this has its own financial implications.

As a result of these various pressure points, financial advisors and their clients are having to factor the principal residence into retirement plans; fortunately, real estate values have pushed higher – dramatically higher in Canadian cities like Toronto and Vancouver – and can offset the lack of investment returns from market-based products. The reverse mortgage, essentially a line of credit with interest that is capitalized and doesn’t need to be paid back until the property is sold, can provide homeowners with badly needed retirement income. This product is gaining traction rapidly. Home Equity Bank, one of the suppliers of reverse mortgages in Canada, predicts growth in these products of between 25 and 30 percent in the next few years. Good news for those who own a principal residence. No solution for those who don’t.

How the whole retirement picture plays out for boomers is shrouded in mist. Perhaps global economic growth will catch fire and prosperity will reign around the world, elevating investment returns for retirees in the process. But more likely, radically scaled back retirement plans will be the order of the day. So will part-time jobs.


Posted on

January 24, 2023

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