Is Canada’s Retirement Plan Safe?

What to Do Now that Canada’s Getting Older

By Victoria Chau, Staff Writer
Design By Ryan Trinidad

To the dismay of some and the joy of others, we all inevitably age as we move through the many phases of life: we graduate, we find our first job, then our second and third, and eventually we retire.

But this year marks a significant phase that has the potential to affect us all as the baby boomers of Canada and the rest of the developed world begin to retire. Indeed, projections by Statistics Canada predict an increasingly older population, with a median age just less than 40 years old for 2010. So what will an aging population for Canada entail for everybody else?

With a large portion of Canada’s population on the cusp of retirement, our labour market is about to drastically change. One of the popular solutions to mitigate the problems that come with an aging population is to bring in newcomers from other countries. Immigrants are expected to help alleviate not only the worker shortage but help boost the fertility rate and contribute to the tax revenues needed to support a large aging baby boomer cohort.

More than Just Over the Hill
The saying goes that once you hit 40 you’ve gone over the hill; so what do we call our baby boomer cohort as they approach the bottom of the hill and move into retirement? The effects that a huge number of baby boomers about to retire in Canada will have on the economy are worrying everyone. Statistics Canada projects that just 16 years down the road, by 2026, the number of seniors will nearly double from 4.3 million to 8 million, bringing their share of the population up 8% to 21.2%.

It’s not just that Canada has a huge body of workers at the age of retirement, it’s also that once they have retired, the baby boomer generation is expected to live longer than their parents before them, due to an increased life expectancy. Instead of retiring at 65 and then living another good 10 or 15 years, baby boomers can expect to see past their 85th birthdays, causing a strain on the government that has to support them despite a shrinking tax base.

[pullquote]Once [Baby Boomers] begin to retire, Canada’s tax revenue base is going to shrink rapidly.[/pullquote]

When the baby boomers entered the workforce between the 1960s and the 1980s, this era was characterized by economic growth and prosperity. The sheer size of the numbers entering the workforce during this period boosted the Canadian economy through their wages and tax contributions. The governments during this time were able to use these funds to establish social securities such as health care, public pensions and lower post-secondary education costs.

However, once they begin to retire, Canada’s tax revenue base is going to shrink rapidly. Boomers who were once responsible for the main core of tax contributions will not be earning much money and as such will contribute less in the form of taxes. This shift in tax revenues will result in a cash-strapped government that is already losing an estimated $20 billion in taxes.

To combat this reduction in tax revenues, the simple and logical solution is for the Canadian government to come up with a way to collect more taxes. Collecting more taxes doesn’t necessarily mean increasing the tax rates—the government can offset the projected decrease in taxes if there is a stable or increasing amount of earnings from the workforce. One suggested solution to this debacle is to make up the difference by increasing the number of immigrant workers as well as their earnings and in that way boost taxes.