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The Great Retirement Con
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The Great Retirement Con
The Origins Of The Retirement Plan
Back during the Revolutionary War, the Continental Congress promised a monthly lifetime income to soldiers who fought and survived the conflict. This guaranteed income stream, called a “pension”, was again offered to soldiers in the Civil War and every American war since.
Since then, similar pension promises funded from public coffers expanded to cover retirees from other branches of government. States and cities followed suit — extending pensions to all sorts of municipal workers ranging from policemen to politicians, teachers to trash collectors.
A pension is what’s referred to as a defined benefit plan. The payout promised a worker upon retirement is guaranteed up front according to a formula, typically dependent on salary size and years of employment.
Understandably, workers appreciated the security and dependability offered by pensions. So, as a means to attract skilled talent, the private sector started offering them, too.
The first corporate pension was offered by the American Express Company in 1875. By the 1960s, half of all employees in the private sector were covered by a pension.
Off-loading Of Retirement Risk By Corporations
Once pensions had become commonplace, they were much less effective as an incentive to lure top talent. They started to feel like burdensome cost centers to companies.
As America’s corporations grew and their veteran employees started hitting retirement age, the amount of funding required to meet current and future pension funding obligations became huge. And it kept growing. Remember, the Baby Boomer generation, the largest ever by far in US history, was just entering the workforce by the 1960s.
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Seniors going bankrupt in soaring numbers
More Canadians are outliving their savings and spending their golden years in debt
Judy Southon never imagined it would come to this. She and her husband Vic had good jobs, raised a son and were homeowners. But after a run of bad luck, the 67-year-old wound up deep in debt and had to declare bankruptcy.
“I was scared and shocked,” says Southon, who lives in Toronto.
The golden years have become a tarnished chapter for some. Seniors are carrying more debt into retirement and, as a result, a growing number are going bankrupt.
According to the federal Office of the Superintendent of Bankruptcy, 10 per cent of those who declared bankruptcy in 2014 were aged 65 and older. That’s a whopping 20.5 per cent increase from 2010.
Spend savings, pile on debt
One of the reasons is actually a plus — we’re living longer. “For many of us, we’re outliving our savings,” explains Nora Spinks with the Vanier Institute of the Family, a non-profit research organization.
Another driving force is that more seniors are retiring in the red.According to Statistics Canada‘s most recent numbers, in 2012, 42.5 per cent of people aged 65 and over still had debt. That’s a stunning increase of 55 per cent since 1999.
Bankruptcy trustee Doug Hoyes blames the lingering debt largely on our addiction to low interest loans.
“If you’ve got decent credit, you can go out and get a mortgage for 2.5 per cent. So why not be buying the bigger house?” he says. “Today we don’t need to save because we all have a line of credit.”
- The lust for home equity lines of credit: should we worry?
- Real estate woes: The secret lives of house-poor Canadians
But paying down debt in your senior years can be challenging on a fixed income. Throw in an unplanned setback like a financially needy adult child or a family illness and the bills can become crushing.
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