In a few months it will be RRSP season again. Many banks will be courting customers to begin or enhance their retirement savings. Similarly, financial advisors will be using the RRSP buildup to gain new clients and enhance existing relationships.
After Christmas the RRSP circus becomes the hottest show in town, but methinks this year will be different. The news on every street appears to be covered in a blue funk, or more appropriately, red ink.
Retirement is a long way off, so I can afford to hope that while the portfolio is already diversified that in time gains will return. But a conversation with my step-father allowed me a more robust view of the current financial crisis and it’s impacts.
“My RRSPs have dropped 40 per cent, according to my calculations,” he said to me last weekend. “How are yours doing?”
I couldn’t focus on my situation when I began looking at his greying hair and listening to the passion in his voice as he described how unhelpful Scotia Bank was being in providing information on his investment.
As he described how impossible early retirement would be for him now, the gravity of the crisis began to pull me down. I realized that while young people have time to recover, their elders might be under significant stress, having to rethink their retirement strategy.
Those aged 45 to 64 comprised 28.8 per cent of the Canadian population in 2007, so I imagine that they, along with lesser 13.4 per cent who are 65 and older, worry most about their savings.
If they depend on income from RRSPs and similar products that were invested in the stock market, it must be quite difficult to endure the current economic crisis.
It’s widely reported that Baby Boomers are the largest segment of the population and are expected to be big spenders in retirement, so shouldn’t they command the attention of financial planners within public and private institutions?
In early 2009 the Canada Pension Plan will provide end of year reports. With stock market related losses expected, it would be nice to know that the government already has a plan to address this so that investor confidence doesn’t fall further.
Government Response to Retirement Insecurity
Today the Toronto Star’s Rita Trichur reported that the Prime Minister has vowed to take further steps to benefit “Canadian jobs, Canadian credit, Canadian economy, Canadian business.” Meanwhile, retires and those close to retirement are equally concerned about what he will do to bolster pension and retirement security?
What about those people who have very little savings — both those close to and far from retirement? They need the government’s help now more than ever. Yet there has been silence on the issues that might be giving them indigestion and insomnia.
In a recent Wealthy Boomer blog post, author Jonathan Chevreau humorously suggests that people take their eyes away from the market as much as possible and engage in exercise and other leisure activities. To facilitate that, the government’s eyes should be on the ball and demonstrating that it is considering more than capitalistic ideology.
Given Harper’s well known economic beliefs, it’s easy to doubt much else is being tossed around; However, this is where the elected opposition needs to ensure that the little people are protected and policies are created to address their worries.
Is the Glass Half Full or Half Empty?
Unlike Harper’s now famous 2008 election advice that this is a great time to buy; some like Harry Dent predict depression.
“Home prices will continue to decline into late 2008 and then will likely experience a minor rebound in early to mid 2009,” Dent predicts. “However, rising inflation, interest rates and a last commodity bubble will bring a final blow to stocks, the economy, housing, and even the greater emerging market bubble in stocks overseas.”
Dent seems to disbelieve that the emerging markets will be immune to the most negative effects of this financial crisis. After all, with reduced spending power in traditionally wealthy nations it is reasonable to expect that the economic pain will spread.
Also, especially if Dent is correct, it will take a very long time for Canadians to recover their savings; But time is not on everyone’s side. As a result, the elderly and poor need extra protection.
With luck and preparation, the future may yet be rosy for some; but those who struggle to overcome financial losses, whether due to job losses or the stock market’s vomit-inducing roller-coaster ride, they particularly need the help of their elected officials along with ingenuity to navigate this mess.
It is all too similar to the errors of the early part of the Great Depression when the Canadian government refused to interfere in the free-market economy.
Prior to 1930 the government expected churches and charities to help the numerous needy. It would eventually realize its error and actively help Canadians by implementing minimum wage, a standard work week, medicare, unemployment insurance, and a central bank — The Bank of Canada.
Now, in the midst of excessive greed and credit over-reliance, it is time again for bold ideas to protect the citizenry, so would those entrusted with the job please begin generating ideas to help the common people — especially those who are worried about pension and retirement security? Hopefully we will not have to wait for another Great Depression to make the case for action.