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Pension crisis? What pension crisis?

If you're freaking out about your pension, here's some good news for you.
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Gina Monaco, May 16, 2013 7:43:50 PM

For those five million seniors and boomers who are approaching retirement, which accounts for approximately  27 per cent of Canada’s population, fears of not having enough money to live out your days have been put to rest.

Media messages of late, calling for increases in Canada Pension because the aging population has not saved enough for retirement seems to be much ado about nothing. When the numbers get crunched, aging households are sitting on $7.1-trillion in net worth dollars –that’s  net worth – not cash savings, and herein lies the misinformation.

The Statistics Canada National Households Balance Sheet  shows that Canadians have total assets of approx $8.8-trillion, which breaks down to $3.5-trillion in real estate  and real estate investments and $3.7-trillion in liquid assets such as GIC’s, cash, mutual funds, etc.  Subtract the $1.7 trillion in debt – two-thirds of which is mortgage debt – and personal net worth comps out to $7.1 trillion.

Pension experts are looking solely at cash assets – RRSPs, mutual funds, etc. and are ignoring the asset in real estate in their calculations.

Here’s the reality: A home is truly a nest egg. People do use their home equity for retirement income. They will sell the asset, take out a reverse mortgage or downsize. Another Stats Canada Survey of Household Spending found that 43 per cent of Canadians are mortgage-free.  Even better is that these homeowners know that investment in their principal residence is tax-free.

So why all the fear-mongering? Just take a look at who’s sending the messages – banks, retirement specialists and financial planners — just about everyone who has a financial interest in getting you to save more, and preferably with the products they offer.

That’s not to say that it will be clear sailing for everyone. Today’s workplace is much different than it was twenty and thirty years ago. Jobs were more secure and employees had pensions. Today, pension funds have dwindled, job security is non-existent, and there are more contract workers with no benefits. And many Canadians don’t own their home.

There is some help for those seniors at the low end of the income scale in the form of government top-ups such as the federal Guaranteed Income Supplement.

The other truism is that people have been racking up more debt, which may or may not become an issue.  In 1982, when savings peaked, Canadians saved about 19% of their disposable income. Last year, those savings dropped to four per cent.

The bottom line for seniors, and for everyone for that matter, is learning to spend less. Be realistic about lifestyle requirements going into retirement.  You might be estimating too high.

It is a good idea to discuss it with a financial planner or a bank. Gather as much information as you can. Be clear about your finances and be realistic – no need to panic. Decide for yourself how much money you need. You might be better off than you know.

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Gina Monaco

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