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April 2, 2021 | The Time Bomb

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Soon we get a budget. Don’t expect pretty. Red ink to the horizon. All will blame Covid.

Fine. We get it. Pandemics are rare and hideously costly. But they also pass, as this one will. However some things don’t pass, and are far more consequential.

Like age. Currently Canada is sliding into a demographic crapstorm which will have a bigger effect than any virus and impact everyone. Our insane, unhealthy, addictive obsession with real estate is just making it worse.

Here are the facts. You should remember these.

What’s the single biggest thing the feds spend money on? Old people’s pogey. Annually the OAS costs $56 billion. There are 6.5 million oldsters, which is about 15% of the population. But age is unstoppable. In a decade and a half the wrinklie cohort will be massively larger. So OAS is on the way to over $100 billion by 2030. Ouch.

There’s more. Even without a slimy little virus, health care is the biggest expenditure of the provinces, at $180 billion. Guess how much of that is spent on people over 65 – just 15% of the population? Almost half. And it’s about to go through the roof with the aging wave.

Conclusion: governments don’t have this kind of money. And they can’t get it, either. Total federal revenues are now $320 billion and even with robust population growth that might increase in 15 years to $370 billion. Increased OAS alone will suck all that up – and health care transfers will explode. In short, this is utterly unsustainable – without major spending cuts and tax increases.

What to cut? Transfers to provinces for health care? CPP and OAS payments? Child care? Military? Already we’re in serious deficit, with a bloating debt. We can’t stop servicing a trillion-dollar debt. And it seems there’s zero appetite among Canadians to see government support wither or to face broad-based tax increases. Clearly ‘taxing the rich’ or diddling with the ranks of public workers will do nothing to stem this tsunami of need.

But there’s more.

Two-thirds of Canadians have no company pension plan. Of those who do, a minority will see defined benefits and most are stuck in glorified, mutual fund-based, low-T, group RRSPs. And speaking of registered retirement plans, only a quarter of people contribute anything. Together we’ve used less than 20% of the allowed contribution room. Close to half of all working Canadians have zero RRSPs. And no pension. In fact among Boomers who so have savings, the average is just $178,000 – enough to blow through in five or six years.

Let’s summarize. Pension plans are disappearing. Personal retirement savings are scant. Half of us have nothing. And there’s no way OAS or health care needs can be publicly financed in as little as ten years. In fact governments are coming out of Covid crippled by historic levels of deficit and debt.

This is a demographic time bomb. If you’re in your 50s it means don’t count on OAS in retirement. Expect rationed health care and LTC fees, in your eighties, of ten grand a month. And did I mention life expectancy? No? Well, it’s going up. Most people should count on having to finance at least 20 years after a work income ends. Women, more.

Why aren’t we talking about this in our national life? If millions are people are heading for a retirement disaster and expecting support that will bankrupt every other generation, how can this not be a political topic? Hello, Erin and Justin? What’s the plan, boys?

If you think the political class will wake up to the irreversible, unstoppable and inevitable demographic crush heading our way, cool. Carry on. Put all your net worth into one inflated asset, buy a cottage and a quad, save nothing, borrow big, don’t take advantage of tax shelters, don’t invest in assets that will pay you an income and wait for the government cheques.

But if you understand the threat, welcome to reality. You’re on your own.

Except for me. Stay tuned.

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April 2nd, 2021

Posted In: The Greater Fool

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