Baby boomers are just starting to retire, downsizing their lifestyles and generally spending less. As a result, companies are more reluctant to invest in future growth prospects. Many investors have been stung by the meltdown of Nortel Networks Corp. and other Canadian technology stocks in the early 2000s, and made more cautious by the impact of the credit crisis on the rest of their portfolios in 2008.
Private and public sector employers are cutting back generous workplace pensions and continuing to shed costly defined-benefit pension plans – which offer predictable and secure incomes to retirees – for more uncertain defined-contribution plans. It’s still better than the situation for 60 per cent of Canadians who don’t have workplace pensions at all.
It’s a stark equation that is punishing a wide swath of the country’s population either approaching, or recently into, their so-called golden years.
“I think you have to be sick not to be unsettled by what you see going on,” says Jim Topolniski, a 62-year-old Montrealer who is starting a third career with a startup interior design firm, just a year or two before the age at which he once thought he would retire.
“With only a few years left, I can’t withstand the hits we’ve taken in the past. We have to be more conservative. I hope one day we can live half the retirement my parents did.”
Carolyn Arnold is excited about a new course she’s teaching to students of St. Martin Secondary School in Mississauga. The fiftysomething Oakville mother of two used to be a commercial bank lending officer. After her husband passed away from Lou Gehrig’s disease 10 years ago, she became a teacher, specializing in business and finance.
In the wake of the 2008 financial crisis, she wants students “to look at themselves and their attitude to money and what emphasis they place on it, where it fits in their life.” Students taking her course will learn about budgeting, savings and debt, and to become financially literate against the backdrop of an uncertain global economy.
Not surprisingly, Ms. Arnold is conservative when it comes to investing her own money. Close to two-thirds of her portfolio is in fixed income, “a reflection of who I am,” she says. “I can live with that. I’m not willing to accept the risk inherent in [chasing high]returns.”
And yet, for someone who teaches financial prudence to her students, Ms. Arnold is actually making investing choices that could shrink the size of her nest egg, in real terms. The GICs she is buying now are paying much less than the 5 per cent to 6 per cent she was earning before, and less than the rate of inflation. “There’s a hit on that,” she acknowledges.
Others in a similar position are more agitated by the prospect of seeing the “safe” portion of their savings deteriorate as inflation outpaces interest rates. “My purchasing power has gone down dramatically, and I’m one of the fortunate ones,” says 76-year-old Bill Langford, a British-born metallurgist and father of two. He took early retirement from the federal government 20 years ago and lives with his wife in North Saanich, B.C.
His indexed pension payments have not kept pace with total inflation, and he’s now drawing down his RRIFs, resulting in a heavy tax bill. A long-term market dabbler who took a hit from holding Dome Petroleum in the 1980s and Nortel in the 2000s, Mr. Langford’s six-figure portfolio is now almost 60-per-cent cash, the result of a well-timed exit from equities in 2007 when he sensed – correctly – that something bad was about to happen.
“I know I’m losing money” by holding cash with declining purchasing power, he says. “It’s frustrating, and very difficult to know where to put the cash.
GICs? “A waste of time,” he says. He’s wary of mutual funds and doesn’t want to commit to a 20-year bond that earns 3.5 per cent. “I had Ontario Hydro bonds that paid 9 per cent,” he says wistfully. “They were wonderful. These days there’s just nothing in the bond market and corporate bonds are quite risky.”