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rob carrick

Every dollar saved for retirement means a more secure future for young adults just starting out.

We know those millennials need all the help they can get right now. Good jobs are hard to find and launching a career with a decent salary is a real challenge. The last thing these 20- and 30-somethings need is the prospect of being asked to pay higher taxes to support an aging population that didn't save enough and thus has to rely increasingly on government programs.

The adequacy of the nation's retirement savings matters to everyone. That's why the topic was discussed in depth at the Public Policy Forum's national summit on pension reform in Toronto earlier this month.

A few presenters made persuasive arguments that we're doing just fine as savers right now. There were estimates that as few as 10 per cent and no more than 30 per cent of people are saving inadequately for retirement.

But doubts remain about future and even current retirees. For example, there's the fact that indebtedness among seniors, while at comparatively low levels, has grown faster than in any other chunk of the population. If seniors are financially secure, why can't they live within their means?

Another issue is the high level of indebtedness in the whole population. This is a relatively new phenomenon that tracks the plunge in interest rates since the global financial crisis flared up six years ago. People retiring today did much of their saving before the debt binge began, so they should be fine. But people who will retire in the next 10 to 20 years may be spending what they should be saving. A rise in interest rates would further compromise their retirement saving.

Demographics also suggest there's reason to be concerned about whether people are saving enough for retirement. In a presentation to the pension summit, former Bank of Canada governor David Dodge said that 24 per cent of the population will be 65 and older by 2035, compared with 15 per cent last year.

Government per capita spending rises as people age, which is worrisome because there will be a growing imbalance between the number of working-age people and seniors. Mr. Dodge's numbers show this ratio will fall from 4.5 to 1 last year to 2.3 to 1 in the 2050s.

This means fewer people paying into government revenues with their tax dollars and more people drawing down on this money through programs such as the Guaranteed Income Supplement for low-income seniors, Old Age Security and health care. "The fundamental challenge is how to provide adequate retirement income for the future population of elderly people without imposing undue burden of taxation on the working population and the business sector," said Mr. Dodge, now a senior adviser with the law firm Bennett Jones.

Working longer can help and, in fact, we're already doing that. Mr. Dodge said the average age of retirement has increased to 63 years in 2013 from 61.4 years in 2008. This will help reduce the retirement savings burden, but more saving will still be required, especially if interest rates stay low. "The need to increase household saving is a major issue," Mr. Dodge said.

It's important that we frame the argument for aggressive retirement savings the right way. There's no point using the term "crisis" because it's not clear there is one right now. Fred Vettese, chief actuary at the human resources firm Morneau Shepell, told the pension forum that he estimates only 10 to 15 per cent of the population is neglecting retirement saving. "We're much better prepared for retirement than we seem to think we are," he said.

That view is supported by data on seniors' income and poverty. The recently issued Global AgeWatch Index ranked Canada fourth out of 96 countries based on indicators that included income security .

It's when we look ahead that retirement becomes less secure. In addition to demographics and high debt levels, we have investing issues related to persistently low interest rates. Stock market returns will be better than bonds and GICs in the years ahead, but not spectacularly so. A panel of experts consulted for my most recent Portfolio Strategy column see average annual returns for a balanced portfolio coming in around 5 to 6 per cent over the next 10 years – before fees.

However well we've been saving for retirement, we need to do better. Give the taxpayers of the future a break.

Globe app users click here for a chart showing why we need to save for retirement