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Canadians facing retirement are being squeezed by weak investment returns, stagnant incomes and the rising cost of everything from food to fuel to housing.
Canadians facing retirement are being squeezed by weak investment returns, stagnant incomes and the rising cost of everything from food to fuel to housing.

Personal Finance

For savers in Canada, a sinking feeling Add to ...

Colleen Wallace is frugal, and proud of it.

The 70-year-old resident of Chelsea, Que., a rustic enclave north of Ottawa, managed to make ends meet while raising a daughter on her own, and despite being laid off from her federal government job 17 years ago. She doesn't have a computer, and she uses a rotary dial phone with a party line – a relic of a bygone era in telecom. She collects a pension, has a modest investment portfolio and her house is paid off.

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“I’m not hurting but there’s no room for any exotic spending,” Ms. Wallace says. “I’m very good with my income. I’ve never gone into debt and never spent more than I can afford.”

But like millions of Canadians who are either approaching the end of their working lives or living on fixed incomes in retirement, Ms. Wallace faces an array of economic forces that appear to be stacked against her, and she is worried about her financial well-being.

It’s the saver’s dilemma. Life for these Canadians has become an uncomfortable squeeze between weak returns on their investments, stagnant incomes and the steadily rising cost of everything from food to fuel to housing.

“Savers are screwed,” says Nick Rowe, an economist and monetary policy expert with Carleton University in Ottawa. “There are good times to be a saver and there are bad times to be a saver. And the bad time to save is when everyone around you wants to save and not many want to invest.”

Bank of Canada Governor Mark Carney, among other central bankers, has kept interest rates near historic lows since the onset of the global economic crisis in an attempt to stimulate the flagging economy, and there’s no sign of a rate hike any time soon. But some critics say the playing field is now tipped too far in favour of borrowers rather than savers. Canadians in droves have piled on debt to buy new homes and make other purchases, prompting warnings from Mr. Carney of the dangers of carrying too much debt – even as his policies encourage borrowing and provide little ability for savers to generate substantial low-risk income.

“It’s one thing for Carney to say this is a problem and warn people,” says William Robson, president of the C.D. Howe Institute in Toronto. But “actions speak a lot louder than words.”

Inflation, while low at an annual rate of 2.3 per cent, compares with one-year guaranteed investment certificates (GICs) paying roughly 1 per cent a year. Simply put: A dollar saved today will be worth less a year from now.

For Ms. Wallace, the cost of food, gas, and her municipal taxes is going up, at a faster rate than her pension. Lately she has been wondering whether she should take her investments out of the market, given the turmoil of the past few years. The challenge is “wondering where I would put” the money, she says. “With interest rates where they are, I’d be going backward” by investing the money in bonds or GICs whose returns lag the rate of inflation.

“I used to think of [my savings]as a tremendous amount of money. There’s a wake-up call – it isn’t. Ten years in a nursing home would wipe it out.”

Many from Ms. Wallace’s generation did what they were told they should do to prepare for retirement: They secured a stream of pension income, build investment portfolios in the six, or if lucky, seven figures, and paid off their homes.

Those investments were supposed to see aging Canadians through the last chapters of their lives. Instead, many wonder whether their nest eggs will be sufficient or are built to weather the uncertain economic environment. Even their homes may not be worth as much as they thought, as economists warn Canada’s long housing boom may be over.

Add to that a slew of other factors: The Harper government is talking about scaling back one of the cornerstones of the pension system, Old Age Security.

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