Monday, January 30, 2012

Retirement Age

Since the government has said they plan on raising the age at which you can start to collect Old Age Security from 65 to 67, I thought I would express my thoughts on this.

The age at which you can collect Old Age Security has not risen since it was introduced in Canada.   This does not make any sense given how much longer people are living and the very fact they are normally still capable of working.

An important consideration in all of this is the dependency ratio.   This is a measure of what percentage of the population is in the active workforce.   The higher the percentage, the more people are dependent on each person that is working.   Children are not in the workforce and neither are the seniors. Countries have high ratios when they either have a lot of kids or a lot of seniors

Canada generally has done well with this ratio for the last couple decades, the primary reason for this is that the baby boom was biggest in Canada leading to a drop in the ratio starting in the 1960s.   This same cohort is now going to turn things around and very rapidly.   It is because of this larger baby boom cohort that Canada is going to see a faster and more dramatic shift in the dependency ratio of anywhere else in the world.

No country has bigger crisis coming than Canada and the government needs to take action now to ensure the long term sustainable economic well being of the country.

Raising the retirement age in the country is the single best tool to ensure we do not have a sudden and large increase in the dependency ratio.   The two year increase proposed by the government is a start, but I do not think it is enough.  I think Canada needs to take some leadership on this and work quickly towards a retirement age of 70 at which time you can collect OAS and CPP.   Make the transition over a decade, a six month increase per year.

The country could go further and reward people willing to put off collecting OAS and CPP.   Ideally the government would allow people to continue to have RRSPs much longer before having to convert it to a RIF.

Each person that retires later counts twice in the ratio, they reduce the dependent population and increase the supporting population.  The continuation of people earning income and putting money aside for retirement also increases the amount of money saved in the nation.   We have a danger coming in Canada that with too many people retiring, the money being saved by the population as a whole will be significantly less.   These savings form an important source of capital for government and business in Canada.

This is an issue that will be easy for people to put off to the future but the problem with that is when we reach that future we will not be able to deal with the crisis.  Not changing now means that in the future OAS and CPP will have to be drastically altered to deal with the problem.


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