Thursday 30 April 2015

Book ~ "The Third Rail: Confronting Our Pension Failures" (2013) Jim Leech and Jacquie McNish

From Goodreads ~ For all Canadians, a blueprint on the state of Canadian pensions, the crisis we are faced with, and solutions to fix it - from the foremost expert on the subject.

Over the next 20 years more than 7 million Canadian workers will retire. Baby boomers, the 45- to 65-year-olds who account for 42% of the country's workforce, will join the largest job exodus in Canadian history, moving the promised land of retirement. Unless our crumbling pension system is reformed, many of these reitrees will find this dreamland a bewildering and disappointing mirage.

In the early 1980s, consumers were setting aside 20% of their disposable incomes to their retirement plans; today the savings rate is a threadbare 2.5%. Retirement savings plans meant to build Canadians' personal war chests for their final years have failed to live up to their cheery promises of early retirement "freedom" - market returns are low, and financial fees are climbing. Moreover, retirement plans are now being compromised by high pension obligations and a shrinking workforce.

Canada has the capacity to diffuse this ticking pension time bomb with some hard choices, posits Leech. It's time for businesses, governments, unions, and employees to face these options and fix - and ultimately save - our pensions system, taking examples from Holland, New Brunswick, and Rhode Island - places in which new laws have been adopted to repair the pensions programs. 

I work in the group retirement industry and enjoy reading books on financial planning and planning for retirement ... so this book caught my eye and I found it interesting.

This book provides information about Canadian retirement plans available including Canada/Quebec Pension Plan (C/QPP), Old Age Security (OAS), Guaranteed Income Supplement (GIS) and workplace savings plans (defined benefit plans and defined contribution plans).  The authors, Leech and McNish, provide their opinions on how the retirement landscape should be improved because the majority of Canadians aren't saving enough to fund their retirements.

It was interesting to read the three case studies of pensions plans that were failing and managed to turn themselves around:
  1. New Brunswick
  2. Rhode Island
  3. The Netherlands

While I think the authors did a good job in analyzing the current situation and providing recommendations, I think they should have also placed emphasis on the responsibility of individual Canadians to save more.

Part of my job is to talk with people about saving for retirement.  There are many who are on track and will be able to maintain their lifestyles in retirement.  But there are many more who aren't.  In a lot of cases, they assume they are saving enough so it's a bit of a shock for them when I show them that they aren't but then I help them get on track.  I know that some can't afford to save more so I'm glad they are doing what they can.  But there are others who live in la-la-land.  For example, I was talking with a young guy (about 25-years-old) a couple weeks ago.  He makes about $60,000 a year, has no retirement assets saved and was contributing just $40 a month to a retirement plan (he could afford to contribute more but he didn't think he had to).  He was extremely surprised and dismayed when he discovered that he won't be able to retire early at 55 and maintain his pre-retirement lifestyle.  Seriously?!

I think it's great that Canada and various provinces are looking at reform and ways of making us save more for retirement but I also think a lot of it comes down to ourselves.  If you don't also save for your retirement, you can't be surprised when you can't have the one you want when you get there.

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