Monday, May 18, 2015

Seniors better off than 30 years ago in Canada, who knew?

In an article in the Globe and Mail  commenting on the current Budget put out by our government, Margaret Wente said "Canadian senior citizens are among the most affluent people in the world. Fewer than 5 per cent of seniors live below the poverty line – one-third the rate of children who do. Since 1999, the median net worth of seniors has jumped 70 per cent. We are better off financially than our parents,..." 

 All this sounds great, but in BC The majority of seniors have an annual personal income of less than $40,000.  In addition Canadian seniors receive the largest share of their income from federal government programs. These include Old Age Security (OAS), the Spouse’s Allowance, the Canadian/Quebec Pension Plan (C/QPP), the Guaranteed Income Supplement (GIS), and other government plans. Women rely on the OAS benefit much more than men. The GIS provides additional financial security for seniors with low incomes. Senior women are more likely to have low incomes than senior men. This according to a report by Children’s, Women’s and Seniors’ Health, published 2002 and by the Office of  the Senior Advocate in 2014. But if we have groups that, in my mind, are politically motivated who are saying we are well off, and we have research that seems to says seniors are not that well off, who is telling the truth. I tend to believe the research.

According to a report by the Bank of Montreal Canadian seniors today have never been better off financially, and are four times richer than their parents were at the same age in the mid-1980s. The report is the second part of a study; the first part released in May found that Millennials - those aged 25-34 years, are on a somewhat firmer footing in terms of jobs, wealth and income than their parents were at the same age, but are juggling increased debt and higher housing costs.

"Many Canadians 65 years and older have benefited from strong equity, bond and real estate markets, rising participation in the workforce, and higher pension benefits," said Sal Guatieri, Senior Economist, BMO Capital Markets. "The financial position of young families has improved since the 1980s, but has greatly lagged seniors. Barring a high-paying job, most young people will be pressed to replicate the financial success of their grandparents and parents." This is a serious issue we are not addressing and we should be looking at how we can help the younger generation without taking away from the seniors. Generation Squeeze is a good start to look at this issue.

The report analysed a number of labour market and financial indicators affecting seniors - those 65 years and older, compared to the mid-1980s.

Jobs: Workforce participation has increased compared with three decades ago.
I wonder why so many seniors work, is it because we want to or because we have to work? A clue look at the unemployment rate 
  • About twice as many seniors work today than three decades ago
  • The employment rate for people 65 and over has doubled to 13%
  • Meanwhile, overall labour force participation has increased, resulting in seniors having a somewhat harder time finding jobs because of more competition
  • Unemployment among seniors has nearly doubled since the mid-1980s, although its much lower than for other age groups
  • Incomes: More seniors are receiving a pay cheque
Adjusted for inflation, the median income of people 65 and older rose 40% to $23,700 in 2011 from $16,900 in 1984 (Still below the poverty line. Median income means that 50% of Canadians live below this level and 50% live above it. )

Seniors have increased their spending power faster than people aged 55-64 and 25-34 years.

Wealth: Older Canadians are wealthier, driven by rising stock, bond and housing markets
Median net worth of households headed by someone aged 65 and older rose more than four-fold (312%) to $460,700 in 2012 from $111,693 in 1984 (in constant 2012 dollars)
So having wealth in your house means what you can borrow against the value and go into debt or pay more property taxes--having wealth in a house does not make you better off than you were it means that you have some means of meeting day to day expenses if you go into more debt.

Canadian equity returns, including dividends and after inflation, rose more than twice as fast in the past three decades than in the similar period before the mid-1980s Great if you invested wisely and you were not wiped out in the 2008 financial crisis. However most seniors who were invested lost up to 40% of their returns and are just know back to their 2008 levels.

Today, the typical senior is nearly nine times richer than the typical millennial, a wealth gap between similar age groups that has more than doubled since 1984. 

Housing: More seniors own a house
The home ownership rate for seniors is at 70.8% for 2012 compared to 61.2% in 1984
This implies strong demand for renovations, with seniors spending more on maintenance than other age groups
Growing number of households headed by a senior have a mortgage (12.1% in 2012 vs 8.3% in 1984)
 We and the bank own the house and we pay the mortgage off with less income as the value of our investment returns fall because of low interest rates, bad investments or poor planning
Debt: More seniors have debt, but small amount compared to assets
The share of seniors with some type of loan has increased from 42.5% in 2012 to 26.1% in 1984.
Amount of debt held by a senior is small at $18,000 in 2012, a fraction of total assets ($479,000) and less than annual income.
 So Boomers continue to work, pay property taxes, and contribute to the economy while retired and the debt they are incurring is probably helping their children make ends meet or helping them buy their first home.

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