cliffhangers: ledge walkers

Between a rock and a hard place. In free-fall without a net. On one hand, the consumer is exhorted to spend; to glue themselves to mass popular culture where every inch of space, every second of time is induced to engage the shopper to recycle their mind to the lowest common denominator by discussing people and events and then  to get them to spend money on junk. So with these consumption entreaties there is also the kick in the keegster about not saving for those alleged golden years that await. Truth is, if people actually woke up and started saving 10% to 20% of income, the economy would collapse. So, some of the experts say the spending is in part an investment in the equity of a home. But is a home an investment principally or a place to live? If everyone began selling homes, the property tax revenues would begin to crack and that economy, in part parasitical, would potentially implode.

Its like Picasso art work; there are thousands upon thousands of pieces he did, a market cap, market value, perhaps equal to Microsoft, but if  even a relatively small percentage were brought to auction simultaneously, the market would price would drop in half. At least. Government and the financial elite cannot have it both ways and with the boomers hitting retirement and pension age, it partly explains governments like Canada in an immigration race for qualified candidates,as extra ballast to support the spending structure.

(see link at end)…Household debt loads at record levels, and a wave of retirees on the horizon that appear not to be prepared to support their lifestyles through their golden years has some of Canada’s top financial thinkers a little nervous.

Among them is Mark Wiseman, who took over as chief executive of the Canadian Pension Plan Investment Board in June.

While the CPP is solid and sustainable, “it’s not clear the other pillars of retirement savings and retirement income are nearly as solid,” Mr. Wiseman said in a recent interview.

“As a Canadian, I look at that and it causes me concern.”

He is not alone.

In the next 10 years, 4.4 million Canadians will retire, followed by 5.4 million in the decade after that. And, with longer life spans, those retirees can expect to live 20 or 30 more years.

Yet we are saving less than ever, are overwhelmed by even the most basic financial considerations, and our spending is through the roof with debt to disposable income at a staggering 163%.

“The studies are pretty clear. We will have an increasing population of retirees who, it would appear on all evidence, have not adequately saved for retirement,” says David Denison, who, until June, ran the Canada P

on Plan Investment Board which invests the funds not needed to pay current CPP benefits.

According to a poll conducted for TD Canada Trust this year, 32% of Canadians in their forties haven’t opened a Registered Retirement Savings Plan. Less than half said they contribute to an RRSP annually.

…Among other discouraging statistics is the fact that some two-thirds of workers in Canada do not participate in a workplace-assisted retirement program….

…Even if those joining the work force are lucky enough to get a pension, it is increasingly unlikely to be a defined benefit plan that pays a guaranteed percentage of income through their retirement years.

…Some believe the simple answer is for the government to take care of us. Simply expand the Canada Pension Plan.

“It would not only work, it would work well,” says Mr. Denison, who, after retiring from CPPIB was appointed to the boards of Royal Bank of Canada and BCE Inc.

“How do you get more retirement savings and therefore more retirement income for every Canadian? CPP will do it — there’s no question marks around it,” he says, adding that the expansion could be phased in over a number of years.

But expanding the CPP, too, is a victim of Canada’s unique political spectrum …

Small businesses in Canada are also fiercely opposed to the idea, which would likely require higher financial contributions from them. And Canada’s financial services companies, large banks and insurers, would certainly like to see potentially lucrative wealth management businesses kept in private hands.

How do you get more retirement savings and therefore more retirement income for every Canadian? CPP will do it — there’s no question marks around it…“I’m agnostic [how we get there], as long as you get the outcome you want,” he says.

The difficulty, as far as Jack Mintz is concerned, is that there is not a one-size-fits-all solution. The professor at the School of Public Policy at the University of Calgary questions any government intervention that fails to differentiate between different individual circumstances, or relies on formulas that may not truly reflect personal circumstances.

“I think it’s wrong to think the government can take care of these issues,” says Mr. Mintz, noting that those who are well paid during their working lives generally require a lower percentage of income replacement at retirement.

“It’s very important for people to be engaged in their own design, and take a personal approach,” he says.

For instance, “there’s not a lot of incentive” for lower income Canadians to fill up their RRSP contribution room when it will mean clawbacks of the federal government’s Guaranteed Income Supplement or Old Age Security when they retire, he says.

For some, it makes more sense to build up more equity in a home, especially because there will be no tax down the road when the house is sold, says Mr. Mintz.

In fact, he says a principal residence has been a superior asset since 2008 as housing prices outpaced average investment returns. Canadians have been better at directing their disposable income towards building up home equity than their counterparts in the United States where there is a tax benefit to carrying a mortgage.

But these decisions require a level of knowledge many experts believe Canadians simply lack.

One of the biggest reasons given for proposals to essentially socialize retirement planning through sweeping government intervention is that Canada’s population is, by and large, not informed enough to make the necessary decisions to solve the retirement savings and income puzzle.

“You have to have a broad understanding of mathematics, how it’s going to build up,” Ian Markham, a senior actuary and Canadian retirement innovation leader at pension consultant Towers Watson, says of our retirement nest egg. What’s more, he says, “you have to be a tax expert” to make the best choice among various retirement savings options — or fork out money to someone who is.

As an illustration of how little Canadians understand about their own finances, Mr. Markham says many will refuse to pay hundreds of dollars for financial advice in a year while blissfully unaware that much greater sums of money are going out the door in the form of 1% or 2%, or even more, in management fees on retail investments such as mutual funds. Read More:
http://business.financialpost.com/2012/11/16/no-saving-grace-are-our-best-savings-intentions-hitting-the-wall/

So, there is no consensus here. There are the “actives” who advocate the citizen taking control of their destiny and developing the skills and literacy to do so, in conjunction with government policies acting as enablers. The Left approach, the “passives” is the concept of pooled risk, where state power is enlarged to guarantee outcomes and spread individual burdens over a broad collective by a more pervasive engagement with the tax payer. All the Western economies are roughly in this dilemma and have been cautious between alienating and reassuring the electorate; very much the Canadian approach of trying to ” somehow muddle through.”