Canadian seniors have the lowest poverty rate of any demographic, a high level of net worth and the biggest tax-free savings accounts.
Whether we’re talking about the rules for registered retirement income funds or access to long-term care, there are strong arguments for improvements that better suit the needs of seniors. But framing the discussion as a defence of seniors from financial ruin is an overdramatization that promotes a stereotype of helpless aged people.
Multiple voices have lately called for something to be done about rules that require registered retirement savings plans to be converted to RRIFs by the end of the year you turn 71, with mandatory minimum amounts withdrawn every year. A common argument is that the current RRIF rules increase the risk of seniors running out of money, which is an exaggeration.
As noted in my e-mail newsletter recently, there are ways to meet your RRIF withdrawal requirements and park the money in savings or investments. Paying tax on these withdrawals can be onerous, but the money is needed to fund programs such as Old Age Security and the Guaranteed Income Supplement. Together, these programs will cost an estimated $81-billion a year by 2025.
Here’s an effective argument for RRIF reform from Laura Tamblyn Watts, president and CEO of the advocacy group CanAge: RRIFs were created at a time when life expectancy was much lower than it is today, and people were much less likely to stay on the job later in life. Requiring the RRSP-to-RRIF conversion at a later age would give seniors more flexibility to manage their affairs.
“The thought we have about the RRIF rules at CanAge is that this is outdated public policy that has not kept up with longevity,” Ms. Tamblyn Watts said.
Long-term care is another issue presented as a financial threat to seniors, often by quoting the six-figure annual cost of 24-7 home care. But there’s a variety of ways for seniors to get the care they need, from small amounts of home care covered by provincial governments to long-term care homes with costs that can be less expensive than retirement homes providing mainly shelter, meals and activities.
Ms. Tamblyn Watts emphasized access to long-term care as an issue. Spots in long-term care homes can be hard to get as a result of long waiting lists in some provinces, and there’s increasing competition for home care workers.
The idea of seniors as financially frail dates back to the 1960s and earlier, before the introduction of the Canada Pension Plan and the Guaranteed Income Supplement. In the past several years, the federal government has increased GIS payouts to single seniors and increased Old Age Security benefits for people aged 75 and older. OAS, GIS and the CPP are all indexed to inflation.
The financial resilience of seniors as a broad group can be seen in a few different economic indicators. Seniors had a poverty rate of 3.1 per cent in 2020, compared with 7.8 per cent for adults aged 18 to 64. The median level of net worth for households of people 65 and older ranked second behind 55-to 64-year-olds in 2019 at $543,200.
A look at the country’s TFSA balances tells a similar story. The most recent numbers, for the 2019 tax year, show people aged 65 and up have the TFSAs with the highest average market value.
As always with averages and medians, there are many stories mixed together in the wealth and poverty data for seniors.
“If you think about white, urban, married, stable folks in their 70s, who had good working paths and some type of pension, I think on the whole they are thinking positively about their financial future,” Ms. Tamblyn Watts said.
Her list of groups within the senior demographic that aren’t doing as well include older Indigenous people, and individuals who came to Canada in the past few years and don’t have access to federal pensions and benefits. Also, single women aged 65 and up.
“Women who have been widowed early or divorced, particularly at a time where the divorce benefit splits for family breakdown were not as equitable as they are now, have big holes in their financial well-being,” Ms. Tamblyn Watts said.
I’ll have more to say on single women seniors in an upcoming column. The tax system discriminates against them, and the soaring cost of rent and food has hit them hard.
Seniors as a broad group are doing okay, though. Let’s modernize RRIFs and improve access to long-term care because it’s smart policy, not because they’re a financially frail generation.
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