TD Canada Trust recently released a report that was a little surprising, both from a financial and social perspective. It indicated that one-in-five baby boomers (19 per cent) admitted to researchers that they would consider jeopardizing their own financial stability and future in order to help their adult kids financially.
A great many more admitted to already funding their adult children's lives with 43 per cent letting them live at home rent free, 29 per cent subsidizing big ticket purchases like cars and 23 per cent providing monthly money for things like food and rent. While it is understandable that parents would want to help their children, does this willingness of boomer parents to risk their own future security pose broader implications to the Canadian social landscape?
As a Trustee, seeing seniors facing debt crises is, unfortunately, an increasingly familiar situation. Indeed, the Vanier Institute reported that bankruptcy rates amongst seniors increased by a whopping 1747 per cent in 2012 over 2011. The recent TD Canada Trust research, however, seems to provide a new context to this unfortunate trend.
Seniors' financial burdens may not be stemming solely from living longer, or having savings and pensions that are not keeping up with increased costs of living, as have been the primary explanations. The TD Canada Trust report indicates that some seniors-to-be in the boomer generation are knowingly placing their financial stability in harm's way to help their kids. This makes one wonder what may happen to the boomers if they experience financial instability? If those 19 per cent of boomers willfully jeopardize their financial security now, what are the possible implications in the future, for them, for their kids and for the broader social infrastructure?
One needs only to consider the healthcare system to ponder the broader implications of a boomer generation that may face future financial challenges. Some indications are now surfacing that suggests boomers could face the introduction of a co-payment structure in our healthcare system in the future. This thought is gain some traction in government and academia circles, as the rising healthcare costs that will be required to care for boomers in the future are being studied.
Those increased healthcare costs will be occurring at the same time that the working population, paying taxes, will be decreasing in size. A study done by former Saskatchewan NDP cabinet minister Janice MacKinnon (commissioned by the Macdonald-Laurier Institute, an Ottawa think tank) has stated that "if you look at the economic projections, you're not going to be able to sustain the current (healthcare) system without more money." With this opinion in mind, the fiscal policy professor noted that since boomers will use the healthcare system more, "it's fair and it's effective" to have boomers pay more than others to access healthcare.
Leaving the sensitive nature of Ms. MacKinnon's opinions out of this discussion, the bottom line issue is that boomers will require an increasing amount of healthcare in the coming years. Some will need retirement and nursing homes. Others will require home care. All will require daily living expenses and, as we live longer as a society, these may be for a longer period of time.
If these boomers diminish, or outright jeopardize their financial stability now to support their adult kids, where is the money going to come from to meet their retirement needs? Will it be their adult children, who are already adults and participating in the highest debt-to-income ratios in Canadian history?
Many of them simply don't have much financial flexibility to support more expenses. To say that the demands could be substantive on both the boomers and their kids is an understatement. If boomers dilute their financial safety nets now, face future pressures such as co-payment for healthcare and have kids struggling with their own debt loads, where does the buck stop? What is the potential social impact?
Maybe these forces are lining up to return us to a more "traditional" way of life and impact our cultural norms. Maybe boomers won't sell their current homes into a flattening housing market. Maybe the kids move in, or never leave, and 3 generation households become a norm, like days gone by. Maybe eldercare will, by default of cost, be provided in the home, as the boomers and their children will be left with few options. Maybe one car, or no-car, families become typical, as does shopping locally, decreased travel and less consumption.
It can be easy to see the TD Canada Trust report as more economic theory that doesn't connect with average people. One has to wonder, however, if a financial story such as this is actually an indication of broader social and cultural evolutions that we would all be well served by reflecting upon.
Here is a look at OAS and the CPP and how they differ. (Getty) With files from CBC
The Old Age Security pension is a monthly payment available to Canadians aged 65 and older who apply and meet certain requirements. Unlike CPP, it is not dependent on a person's employment history and a person does not need to be retired from a job to qualify. The government adjusts the OAS payment every three months to account for increases in the cost of living according to the Consumer Price Index. The average monthly amount was $508.35 in the last quarter of 2011. The maximum payout for the first quarter of 2012 is $540.12. There are also supplementary programs, including the Guaranteed Income Supplement, which provide additional income to low-income seniors. The government claws back OAS payments from high-income Canadians. In 2011, for example, if you were retired but had an income of more than $67,668 (from things like pensions and personal investments), the government would reclaim part of your OAS payment - 15 cents for every dollar of income that you had above the $67,668 threshold. That means that if you were retired with an annual income of around $110,000 or more in 2011, your OAS payout would be reduced to zero. (alamy)
OAS is available to Canadian citizens and legal residents living in the country who have spent at least 10 years in Canada after they turned 18. It is also open to people outside of the country who were Canadian citizens or legal residents on the day they left the country, as long as they spent at least 20 years of their adult life in Canada. (Getty)
A person should apply for OAS six months before they turn 65. If you have not lived in Canada continuously or were not born in Canada, the government requires a statement containing all the dates when you entered and left the country. It may also ask for supporting documentation. If a person applies after age 65, they can receive up to 11 months in retroactive payments along with a payout for the month in which a person applies to receive OAS. So if a person applied after their 66th birthday, they would receive 12 months of OAS payments. (Flickr:Keith Williamson)
In order to qualify for a full pension, a person must have lived in Canada for at least 40 years after turning 18. People also qualify if they reached the age of 25 on or before July 1, 1977, and either lived in Canada, had some residency in the country after age 18, or held a valid Canadian immigration visa and spent the 10 years immediately before appying in Canada. For those who do not qualify for a full pension, a partial amount is paid out based on the number of years spent living in Canada. For instance, if a person has spent 36 years of their adult life in the country, they will earn 36/40th of the full OAS amount. Based on the eligibilty requirements, the minimum payout is one-quarter of the total, to account for a total of 10 years spent in Canada. Once a partial pension has been approved, the percentage of the total OAS pension received will never increase even if a person spends more years in Canada. (Matt Cardy/Getty Images)
The Canada Pension Plan is a form of retirement income that is open to all Canadians who have worked and paid into the system through deductions from their paycheques. The amount a person receives under the system depends on how much and for how long a person contributed, along with the age at which a person started receiving CPP payments. There are three types of CPP benefits: disability benefits, retirement pension and survivor benefits. For the purposes of clarity, this article focuses on retirement pension form of CPP. The average monthly CPP benefit in 2011 was $512.64. The maximum payment in 2012 is $987.67. The government adjusts the CPP rate every January to account for changes in cost of living as measured by the Consumer Price Index. According to Service Canada, "If you have lived and worked in Canada most years between age 18 and 65 and earned about the average Canadian wage ($39,100 in 2002), at age 65 you would receive a CPP retirement pension of about $788 a month." (Getty)
Anyone who has made a payment to CPP is eligible for full retirement pension benefits once they reach the age of 65. A person can begin receiving CPP anytime after age 60 if they stop working or reduce their income, although they incur a financial penalty by doing so. In 2012, a person receiving CPP early will be subject to a 0.52 per cent reduction for each month before the age of 65 that they received payments. That number is slated to rise to 0.6 per cent each month in 2016. On the other hand, if a person chooses to delay CPP payments they receive a similar increase for each month they wait between the age of 65 and 70. In 2012, that increase works out to 0.64 per cent per month and will rise to 0.7 per cent next year. (alamy)
This is really up to the individual and whether they want to receive a smaller or larger CPP benefit. However, the government recommends applying six months before a person wants their pension to begin. Canadians can apply online or print out an application and deliver it to a Service Canada location. Similar to OAS, a person can receive retroactive payments covering up to 12 months if they delay applying for CPP until after their 71st birthday. (alamy)
A person contributes 4.95 per cent of of their total pensionable income -- set at a maximum of $50,100 in 2012 -- to a total of $2,306.70 in contributions per year. Their employer contributes an equivalent amount. Self-employed people, on the other hand, must contribute both portions. Anyone earning less than $3,500 is automatically exempt from CPP contributions. At age 70, a person stops contributing to CPP even if they continue working. (alamy)