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The Sustainability of the State with an Aging Population

Northern Light

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So, we all know people are living longer than they used to, irrespective of the Baby Boom demographic problem.

We also know that Baby Boomers are set to retire beginning in the near future, over the next decade or so.

Given that reality, the State as we know it, faces an enormous squeeze.

People often think only of pensions, which is important, but not really the big issue in Canada.

Here, CPP is stable and fully funded though about 2050 or so, due to the increase in premiums about a decade ago, but there are many other cost and revenue issues of great concern.

People often forget that CPP is only 1/2 the retirement equation for a majority of Canadians, OAS is the other key part.

Old Age Security, unlike CPP, is not funded from a segregated fund/payroll tax, and there is no significant reserve for it.

OAS actually pays out just as much as CPP, and constitutes an meaningful portion of Federal spending.

That being the case, as more worker retire, income tax and likely sales tax will decline in revenue; while gov't expenses in OAS will rise significantly.

In addition to those types of costs, there is the ever rising healthcare bill. I would not for one moment suggest or support cutting services to anyone, nor slashing fairly meager retirement incomes programs.

But in the absence of such cuts, how do we as a country deal with problem of a society still on a crash course with fewer than 2 working adults to every retiree (or person over 65)?

*******

Options:

- Drastic cuts are one obvious choice, though, one I reject. We could cut retirement benefit levels, but doing so if that means providing inadequate income to survive seems quite unfair, and frankly useless. Cutting healthcare is just as problematic.

- We can, of course, cut less desirable government services to make some 'fiscal room'.

- We can try to ...incentivize people to have more children, though this is a partial and long-term solution at best, that will not resolve short or medium term problems.

- We can, of course, raise the retirement age.

***

This last one I greatly favour.

Current retirement age:

65 (Canada)
67 (U.S.)
67 (Germany)
65* (U.K., but rising to 66 in 2020)

A modest increase of 2 years to 67 would provide enormous fiscal relief.

Arguably enough to modestly raise payouts, while still saving a bundle.

Though some contend this would be unfair to those who have more physically taxing jobs.

I don't wonder though, whether 'disability' or 'worker's comp' or simply finding such workers less physical labour as they age may be the better course of action.

For heathcare, the challenges are even more acute and demand some 'resourceful' rethinking of how services are delivered and how to reduce need for them in the first place.

********

Suggestions? Thoughts? Discuss!
 
Privatize pensions.

Make it so governments only have to pay pensions to those who are unable to pay their own.

It leads to more social inequality, but it really is the only way to go. It's mostly the poor and lower middle class that really need to be taken care of anyway.
 
Dunno much about this stuff.

Maybe we can build public housing for them, to offset costs of reduced pensions?




Or if I were a messed up neocon I'd say lets lower taxes, that fixes everything!
 
If people live longer, they are likely healthy longer - and have the ability to work longer - so extending the retirement age seems reasonable -- possibly with option to retire earlier in cases of poor health only. Then if someone wants the option to retire earlier - they have to contribute additional premiums.
 
The obvious solution is to ban contraceptives and gay marriage. Amirite? And with enough babies, we might finally be able to put an end to immigration and the cultural decline of Canada as well.
 
The PBO did a fiscal sustainability study. If we acted today, all that would be required to ensure fiscal sustainability over a 75 year horizon is to improve the budget balance by a bit over 1% of GDP. Improve means either spending cuts or tax rises or a combination of the two. Such a tax rise would mean an across the board tax increase of about 6% for the federal government. We're not in too much trouble if we act soon. If we put it off for even ten years, the size of the adjustment becomes much larger.
 
The State will survive a the aging population. I sometimes think how lucky my young children and one-day grandchildren will be in that unlike my Gen X and Y brethren they won't live in the shadow of the babyboomers' influence over everything, including now government spending on health.
 
I think raising the retirement age gradually would help and easy to accomplish. Raise it to 66, then to 67 and eventually to 70 if needed. The other alternative is to tax the wealthy boomers and claw back their OAS pensions at much higher rates than today. Many boomers have large nest-eggs of now only large RRSP accounts but wealth in homes that were bough on the cheap. Boomers were a largely successful generation but their children and grandchildren are screwed to live poorer and shorter lives due to strains on healthcare, unaffordable housing, rising tuitions and expensive child rearing costs. I think seniors in Canada get a boat-load of services for free and maybe that's something we need to look at. Some of these services should only be provided to poor/middle income seniors and not those earning over a certain amount in retirement (as they can pay for it out of their own pockets).
 
Is there an official "retirement age", can a person not work to whatever age they choose due to recent court decisions?

I know people who opted to collect their CPP at age 60 even though there is a substantial penalty for doing so, maybe this option should be discontinued for non needy persons.

Requiring people to work late into their 60's reduces employment opportunities for their grand children and others.

I have been retired quite a while from a reasonably good paying position with a large company, all 4 of my children are earning 2 to 3 times what I ever earned and are living in comfortable homes with decent cars in the driveway. I don't think my lifestyle or spending choices were a deterrent to their opportunities, they have all prospered on their own initiative, not mine or the governments.
 

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