This is an edited excerpt from Pension Ponzi: How Public Sector Unions are Bankrupting Canada’s Health Care, Education and Your Retirement. Copyright (c) 2011 by Bill Tufts and Lee Fairbanks. Excerpted with permission of the publisher John Wiley & Sons Canada, Ltd.
Which Future Will be Yours?
Mark and Jennifer lived next door to Carl and Marnie for 32 years. They raised their families in three-bedroom homes in a suburb outside of Toronto. They had regular holidays, late model cars, went out to dinner, were subscribers to first-run theatre, belonged to the same golf and country club, bought quality clothes, and didn’t worry about the price of food. Both families had two children, and all of them went to university.
Carl and Mark were both accountants. Mark got a job in the accounting department of the local municipality, eventually taking a position with the Canada Revenue Agency. Jennifer worked as an assistant librarian. Carl worked as an accountant for a large steel company for 27 years, but was downsized with a two-year-income severance package when he was 54. He was unable to find similar employment and spent his last 10 working years largely self-employed. Marnie worked part-time while the children were young, and then as a secretary at a law office for 24 years. She retired when the senior law partners took early retirement and the younger lawyers chose not to continue her employment. She was 58 at the time.
For the first 20 years, the incomes coming into the two homes were quite similar but then a gap appeared and continued to widen each year. As a government employee, Mark’s income was negotiated by the Canadian Union of Public Employees (CUPE) and outpaced inflation, whereas the manufacturing company that Carl worked for had had a very weak decade starting in the late ‘90s. Salaries were frozen for several years. Jennifer also benefited from steady raises negotiated by her union, whereas Marnie was never very good at asking for more money and received small and erratic increases in pay.
The loss of income caused both Carl and Marnie to stop contributing to their RRSPs, and once they had spent all of Carl’s severance money, were forced to draw from their RRSPs well before their 65th birthdays.
Mark and Jennifer, on the other hand, were able to retire early with full benefits. Mark retired at 56, having worked 30 years, and Jennifer retired two years later. While they were working, their incomes never stopped increasing. Their incomes weren’t affected by the recession in the early ‘80s, the market crash in the late ‘90s, the Silicon Valley bust last decade, or the financial market meltdown in 2008.
It was a shock to the couple when Carl and Marnie informed them that they were selling their house and moving into a small condo. They had always planned to spend their retirement years as neighbours.
“I felt as if my life were somehow ending and would never be the same again,” says Marnie. “That house was my life, it held my family. It just seemed so un-Canadian to me to be forced out of my house because of money. Carl and I were good people. We worked hard all our lives, we were honest, and we sure paid a tonne of taxes. I just feel like we tried to do everything we were supposed to do and in the end the system just kicked us out like our lives didn’t even matter.”
Ten Years Later: Carl and Marnie
Before Carl had been terminated at work, he and Marnie had been overextending their credit like most baby boomers. They had remortgaged their home to access cash for investments and run up credit cards for holidays, a small home theatre room, a kitchen renovation, and really just living slightly beyond their means. With both of them unemployed, the couple found it difficult to pay their bills. They remortgaged their house to consolidate their loans and hoped that their investments would do well, but when the stock market crashed in 2008 they lost half of their equity. When they sold their house, paid off their short-term debts, and reinvested in their condo they had nothing left from their lifetime savings, investments, or RRSPs.
They had initially tried to continue their previous lifestyle as best they could. But now in their early 70s, they were beginning to realize that they could no longer maintain their lives at this level. Their nest egg was gone; they had maxed out their credit cards and used a $50,000 line of credit on their home.
Carl and Marnie qualified for almost the maximum Canada pension and old-age security payments, but with property taxes going up every year, the price of gas, food, and utilities, and more money being spent for health-related expenses, there was nothing left over for luxury items, and even staples were becoming more difficult to afford. They began to buy lower-quality meats, store-brand products, and damaged produce, and became the “coupon clippers” they had made fun of before.
It became impossible not to feel somewhat jealous of Mark and Jennifer, and eventually that jealousy began to turn into resentment. Carl and Marnie felt they had both contributed so much to their community, and yet their reward was so meagre compared to that of their friends.
Ten Years Later: Mark and Jennifer
Mark and Jennifer’s life as seniors turned out to be everything they could have ever imagined. They kept their family house and it was a great joy to have their children and grandchildren come and stay.
When Carl and Marnie hit hard times, Mark and Jennifer took this as a warning and paid off their mortgage and credit card debts before they retired. With two government pensions bringing in 70 per cent of their previous working incomes and reduced expenses, they had money left over. Each year they planned a special event or major purchase that increased their enjoyment of life.
“I think we’d have to say that for us, Canada is the best country in the world,” says Jennifer. “I guess we were just lucky to have picked careers in government jobs. When we started in our jobs they weren’t particularly high paid, and neither of us were thinking too much about pensions anyway since we were so young, but our unions did a great job for us and we’re just so very grateful for it, especially when you look at what happened to Carl and Marnie.”