Oh, hi again. If you think you’re having more retirement parties at your workplace, you’re not imagining it. And a lot more Canadians are set to retire in the next decade. That could create some problems. Let’s dig into it.
A proposal to face Canada’s biggest retirement wave head-on
By 2030, every remaining boomer will have turned 65. That means we’re right in the thick of the largest retirement wave in Canadian history, and it’s coming at a tricky time.
While many workers are struggling to find jobs right now, economists warn that this slack hides a bigger, longer-term problem: Canada’s labour market is about to get much tighter.
As millions of boomers leave the work force, the supply of available workers will shrink. And with the federal government’s recent immigration policy reversal, there will likely be fewer newcomers to fill those jobs.
According to a recent RBC Economics report, we’re nearing “peak aging.” By 2030, the share of Canadians aged 65 and over will climb to roughly a quarter of the population, and the participation rate – the share of people working or looking for work – is expected to drop more than two percentage points.
Germany, facing similar demographic challenges, is trying to address this with tax incentives for older employees. Starting next year, retirement-aged workers will be able to earn up to €2,000 a month (about $3,200) tax-free – an incentive to keep older Germans working a little longer.
We already know Canadians are working longer. In 1998, the average retirement age was about 61; by 2023, it had risen to 65. Many people I’ve spoken to say they’ve stayed in the work force because they enjoy the routine and social connection, though, of course, others say they simply can’t afford to retire yet.
Still, keeping more older Canadians working, even part-time, could ease some of the strain ahead.
And as the RBC report notes, even high levels of immigration wouldn’t fully offset the impact of aging; the country would need a sustained in-migration rate of more than 2 per cent of the population each year to flatten the curve.
We like to keep things collaborative here at Retire Rich. So, what do you think about the new initiative in Germany? Have any other ideas that could help Canada address the coming retirement wave? Let me know at mraman@globeandmail.com.
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Some industries are greying faster than others. Nearly 40 per cent of workers in fishing and agriculture are already over age 55, and sectors such as manufacturing, wholesale trade, and business services have seen retirement rates nearly double in recent years.
Why it matters: Labour shortages could hit these industries first, especially in older provinces such as British Columbia, Quebec and across Atlantic Canada. Meanwhile, as the population ages, demand will likely continue to shift toward services such as health care and social support, where job vacancies have stayed high since the pandemic.
The Retirement Receipt Open this photo in gallery:
Jennifer Roberts/The Globe and Mail
How should Sid, 55, and Sherry, 46, draw down their savings given their age gap?
The numbers: Sid earns $125,000 a year working for the Ontario government and will get a defined-benefit pension of $75,000 a year, indexed to inflation, when he retires in four years. Sherry earns $180,000 working in financial services and will receive a smaller pension of $7,653 a year, not indexed to inflation, when she retires in two years. They own a mortgage-free condo in Toronto, have no children, have $4.1-million in combined assets, and have a retirement spending goal of $80,000 a year after tax.
The situation: With an eight-year age gap, Sid and Sherry are trying to figure out how to draw down their savings when one retires earlier than the other. Sherry, a dual Canadian-U.S. citizen, also needs to navigate complex cross-border tax rules on her investments.
Key steps, from a financial planner: A financial planner says they can comfortably meet their retirement goals. The recommended withdrawal order: RRSPs first to reduce future Old Age Security clawbacks, then Sherry’s Roth individual retirement account, followed by non-registered accounts and, finally, their tax-free savings accounts. Sherry should review her U.S. tax filings to avoid penalties on non-U.S. investments and consider closing her TFSA, which isn’t recognized as tax-free under U.S. law.
Have Your Say
Are you a Canadian retiree interested in discussing what life is like now that you’ve stopped working? The Globe is looking for people to participate in its Tales from the Golden Age feature. If you’re interested, please e-mail us at: goldenageglobe@gmail.com.
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