Many middle-class Canadians need to think harder about saving more, in order to maintain their standard of living after retirement, if the findings of a recent Institute for Research on Public Policy study are correct. Government measures to rescue them would not suffice; at most, they should be nudged toward providing for themselves.
The study by Michael Wolfson, an assistant chief statistician at Statistics Canada, concludes that middle-income Canadians born between 1945 and 1970 are likely to face a 25-per-cent drop in their disposable incomes when they retire. The people most at risk are late baby boomers, born between 1960 and 1965 with average annual earnings of $80,000; Mr. Wolfson predicts that they will suffer a decline of 35 per cent.
Numerous financial advisers believe that 70 per cent of gross income earned while working will be enough after retirement. Mr. Wolfson applies a more technically refined concept of "consumable resources"; in his view, this amount should be the same, before and after retirement - especially because contemporary retirees should no longer be assumed to be ill or disabled. They are generally able to enjoy what he calls consumption possibilities.
The IRPP study makes clear that low-income Canadians are already getting the 100-per-cent retirement rate. In other words, the truly needy are provided for, at least in this respect.
Middle-income earners are not in such grave peril as to justify forcing them to save through increased payroll deductions; nor should employers' payroll costs be added to by larger Canada or Quebec Pension Plan contributions.
A voluntary supplement to the CPP, however - the voluntariness consisting in actively opting out, so that employees don't just stay out by default - would help coax employees to save more, with little extra cost to the public purse.
Though Mr. Wolfson considers various expanded CPP/QPP scenarios, his IRPP study should be taken to heart by many people as a warning to save more and reduce their debt, rather than as an exhortation to the government to provide for them.