April 1996

Baby Boomers Take Note -
Time is Running Out!

© Talbot Stevens

At age 65, we, the baby boomers, can all look forward to a comfortable retirement with yearly vacations and a new car in the driveway. Right? Wrong!

The bottom line is that many of us will need a pay cheque into our 70s.

At current contribution levels, the Canada Pension Plan is forecasted to run dry at 2015. Borrowing has increased faster than income every year since 1984, and more critically, household debt is now at a record 89% of disposable income.

Less than 60% of Canadians have even started an RRSP! In 1994, the median RRSP contribution was about $2,400 and we only contributed about 16% of the amount that we could have.

Since 1982, our savings rate as a percentage of disposable income has fallen steadily from 17.8% to 7.1% in 1995.

Life expectancies continue to increase while people are retiring earlier, often not voluntarily. The result is the need for a retirement nest egg that must last 15 to 30 years.

Reality: The facts are hitting us square in the face! We cannot depend on our employer or the government for our retirement.

Now into their 40s, baby boomers are focusing on debt reduction, and should be mortgage free over the next decade or so.

Assuming 3% inflation and 7% returns, to retire on a $50,000 a year income (in today's dollars) investing entirely through RRSPs, a 30-year-old couple retiring at 65 would have to contribute $13,000 every year. To retire at age 55, they would need to invest $28,500/yr!

We know that we are starting to gain a basic knowledge of investing, as proven by Canada's mutual fund industry explosion from $5-billion in assets in 1982 to over $150-billion today. However, many of us continue to struggle in our efforts to build a secure retirement.

Solution: Act now, before it's too late! The foundation of your financial plan should include setting up a “pay yourself first” plan to automatically invest in RRSPs on a monthly basis. Pay off all personal debts, and only buy what you absolutely need.

If you have $100,000 in savings and plan to retire in 20 years, the difference between a 10% and 8% annual yield is $200,000, so invest wisely with a trusted advisor.

Evidence proves that the Canadian dream is just that ... a dream! Unless baby boomers make a stronger commitment to educating themselves and adjusting their lifestyle, they will have to live at a lower standard of living during retirement than they are now.

We must save more and spend less, or plan on retiring later.

The choice is yours!

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