Boomers who are Bust is that the norm or exception?

The other day I was listening to radio and the story line was about Boomers who are bust. Older workers who do not have enough fo retirement because they did not save enough. Older workers who did not have enough for retirement because they lost their jobs, etc.

While the press may be waking up to the issue as the boomers start to hit 65, the problem should have been known to the government and planners 60 plus years ago. The problem is now here and people are starting to think about it.

I have friends who are in the position of not having enough for retirement, through no fault of their own. Part of the issue is how the planners see us as investors and therefore plan as such. Another contributing factor is the current leaders think like economists.

My university training is in Economics and one thing I know is that Economists are not really original thinkers and they tend to buy into theories and discount human behaviour in their thinking, which is a shame.


Planners and Government mandarins tend to belive that the ‘economic investor’ is  a dispassionate individual who is unaffected  by emotions such as anxiety, regret, hope and fear. I can tell you that this rational investor simply does not exist. Everyone sees the world from a perspective which is uniquely theirs, and investing is no different.

People have individual goals, requirements, desires, fears and hopes for their wealth. We all have different habits, different people we trust for advice, and different beliefs about the right decision on any occasion. But we all exhibit very similar psychological biases in our financial decision making, which can lead to poor portfolio choices and subsequent investment performance.


The information in this blog has been taken from Pooled Target-Benefit Pension Plans: Building on PRPPs  by Robert L. Brown and Tyler Meredith and from reports from Barclay Banks Behavioural Finance reports.

How you ask is sometimes more important than what you ask. Individuals are extremely sensitive to the way in which decisions are presented or ‘framed’ – simply changing the wording or adding irrelevant background detail can dramatically change people’s perceptions of the alternatives available to them, even where there is no reason for their underlying preferences to have changed. Consequently the framing of questions can often influence the decision that is made.

More than 60 percent of working Canadians currently don’t have a workplace pension. For those who do have one, it does not guarantee them retirement security. With employers increasingly opting for defined-contribution (DC) rather than defined-benefit (DB) pension plans, the burden of managing the risks associated with a pension — such as longevity and the market performance of assets — has shifted to the worker. While this shift may have curtailed pension costs for businesses, it has also left workers more vulnerable financially, since many do not have the wherewithal to plan effectively for retirement.

The world of employer-sponsored pension plans is evolving. While the traditional defined benefit (DB) pension plan remains the primary model for occupational pensions — where they exist — DB pensions have been in a slow and persistent decline for more than two decades. This decline can be measured in different ways: (1) Between 1986 and 2010, the proportion of the Canadian labour force covered by DB pension plans shrank from 39 percent to 29 percent, while over the same period the number of  employees covered by defined contribution (DC) pension plans nearly tripled. (2) The share of registered pension plan members covered by a DB plan fell from 92 to 75 percent, while the proportion in a DC plan doubled from 7 to 16 percent (with the remaining 9 percent covered by hybrid and combined plans) (Statistics Canada 2010b,c).These statistics tell us that there has been a notable shift away from DB pensions,

As in many other countries, in Canada the decline of DB pensions has been felt almost exclusively in the private sector. Among public sector workers, 86 percent have workplace pensions, of which 94 percent are DB. Yet only 25 percent of Canadian private sector workers have workplace pensions, and only 56 percent of those are DB (Statistics Canada 2011). The concern is that for middle-income Canadians, access to a stable, secure and adequate standard of living after retirement increasingly depends on where one is employed.

The 2011 Towers Watson DC Retirement Age Index (figure 3) uses market performance to calculate the age at which an average middle-income worker paying into a DC plan can retire with sufficient asset value to pay for a life annuity guaranteeing an average rate of income replacement. According to the index, workers have had to increase Pooled Target-Benefit Pension Plans: Building on PRPPs their retirement savings by an equivalent of seven years just to balance off losses since the financial crisis of autumn 2008. For many, this means making a trade-off between taking early retirement and achieving the desired standard of living.

A growing number of individuals are now covered by a pension plan that is neither traditional DB nor traditional DC. While it is still a relatively small proportion of total registered pension plan coverage, as of 2010 more than 530,000 workers were covered by hybrid plans as classified by Statistics Canada. Growth in their membership has been nearly tenfold since 1986 (Statistics Canada 2010b). It is important to emphasize that these figures do not include a number of DB regulated plans that possess important elements of hybrid design, such as target-benefit plans. When these are included, as many as one million more workers could be added to the hybrid plan pool, representing a strong cross-section of the Canadian labour force.

Although the optimal rate of income replacement for retirement remains an open question (Mintz 2009; Horner 2009; Wolfson 2011), it is generally accepted that a growing number of modest- and middle-income working-age Canadians are not saving sufficiently to ensure that they will be able to maintain a comparable standard of living once they retire (Horner 2011; Wolfson 2011; Canadian Institute of Actuaries 2007). There are a number of reasons for this. Perhaps most importantly, the propensity to save has diminished significantly over the last several decades. The stagnation of real incomes since the 1980s, combined with increased volatility in financial markets, has made saving more difficult and less secure. Symptoms of this trend are flat real-dollar growth in RRSP contributions and increasing reliance on personal debt as a source of retirement funding (Robson 2010). For the most part, this trend is a middle-class problem (LaRochelle-Côté, Myles, and Picot 2008; Wolfson 2011). Low-income Canadians can generally be assured of replacement rates of 70 to 80 percent, thanks to Canada’s strong foundation of universal and targeted retirement income programs: Old Age Security (OAS) and the Guaranteed Income Supplement (GIS), together known as Pillar 1 of Canada’s retirement income system; and the CPP/QPP, known as Pillar 2 (Mintz 2009)

So the middle class have a large looming pension crises and in response the government is deciding to raise the age of retirement and to cause further distress for the middle class and the boomers. I think they forget we vote.

Canadian Institute of Actuaries. 2007. Planning for Retirement: Are Canadians Saving Enough? Ottawa: CIA.

Horner, K. 2009. Retirement Savings by Canadian Households. Report for the Research Working Group on Retirement Saving. Ottawa: Finance Canada

LaRochelle-Côté, S., J.F. Myles, and G. Picot. 2008. “Income Security and Stability During Retirement in Canada.” =Analytical Studies Branch Research Paper Series, catalogue no. 11F0019 — no. 306. Ottawa: Statistics Canada

Mintz, J. 2009. Summary Report on Retirement Income Adequacy Research. Federal Research Working Group on Income Adequacy. Ottawa: Finance Canada

Wolfson, M. 2011. Projecting the Adequacy of Canadians’ Retirement Incomes: Current Prospects and Possible Reform Options. IRPP Study 17. Montreal: Institute for Research on Public Policy.

Updated Seniors at Risk in BC

"Just to be clear, in my view this is not about more funding. It doesn’t cost more to treat a resident [or patient, family] with respect and dignity. This is about a change in culture.”

Ontario Minister of Health Deb Matthews, May 2012

For More information on this go here
Two more incidents this week reveal a disturbing and growing trend by health care facilities and health care authorities in British Columbia to intimidate and bully visitors.


Jean Wilder Case – visitor banning and police intimidation
In early March, 2012 family and friends of Jean Wilder were suddenly banned by staff at the Invermere, B.C. residential care facility where she had recently been transferred following complications from surgery. The ban occurred immediately after the family asked the care facility for, and were refused, health and medication records, and an explanation of what pre-authorized payment of fees would cover.


Though family and friends lodged official complaints two months ago, they are still awaiting responses. Neither the care facility, the health authority nor the Public Guardian and Trustee have provided any response to complaints that Jean Wilder is being held unlawfully.


Since the ban was introduced, care facility staff have repeatedly called police in an effort to prevent family and friends from visiting Mrs. Wilder. Family and friends feel they are being intimidated by the police, and say that Jean Wilder is being negatively affected by the separation from friends and family, and by the isolation imposed on her as a result of not being allowed to leave the residential facility.


UPDATE:  Ed and Ida Rivers, long-time friends of Jean Wilder, who submitted an official complaint to the health authority on March 24th, submitted a hand-delivered letter of complaint to the care facility site manager on May 25th. On May 29th, four days after their letter of complaint was delivered, site manager Sharon Carroll handed Ed Rivers this response from Interior Health. The health authority letter is dated May 24, apparently back-dated, misrepresenting the order in which the letters were issued so that it appears as if the the health authority had written their letter first.


The site manager’s letter makes broad, blanket allegations about Mr. Rivers but provides no specific evidence substantiating their claims. Ed Rivers denies Interior Health’s allegations that his behaviour has been inappropriate, that he is a threat to staff or residents, or that he inappropriately requested Jean Wilder’s medical records. He acknowledges that he was present in some meetings with staff in which the family requested medical information but says that Jean Wilder and her family wanted him at the meetings.


Banning decisions by facility staff not constrained by guidelines or substantiation
For any perceived slights and infractions, however minor, or even when asked inconvenient questions, staff in B.C.’s health care and residential care facilities apparently have full authority, accountable to no-one, to restrict or ban visitors from seeing their loved ones.


No evidence is required. No means of appeal is available other than the long, winding route of filing complaints with bureaucratic committees. The B.C. Patient Care Quality Program review board and health authority committees operate at great length from individual health care facility operators who make these decisions to ban visitors. Decisions from Patient Care Quality Committees come many months after-the-fact, sometimes long after patients have left facilities, or died.


Apparently, this trend toward aggressively banning family and friends from health care and residential care facilities is taking hold in Alberta as well. In subsequent postings, we hope to share with you the outcome of the May 4th meeting convened by the Elder Advocates of Alberta.
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Help STOP institutional elder abuse – write your elected representatives, voice your concerns online, let others know what’s happening, or… take whatever steps you think will help make a difference to protect seniors’ legal and human rights from abuse by Canadian healthcare institutions and public agencies.

The Coalition to Support SENIORS AT RISK 



However, there is some hope as the courts are starting to help some seniors who have been victim of this change in attitude by our Hospitals

A reader sent us another, more detailed, story about the court award for false arrest at Lions Gate Hospital (excerpts below). Mr. Park’s elderly mother died of cancer “soon after the ordeal.”

This story describes the attitude and rough treatment of patients and visitors by staff, doctors and police, something that is apparently becoming more common in B.C.'s health care facilities.

By Todd Coyne – North Shore Outlook  Published: May 10, 2012

"A former District of North Vancouver council candidate was awarded $15,000 in damages Thursday after winning his lawsuit against the RCMP for wrongful arrest and false imprisonment. …

 “Cpl. Norman took Mr. Park to the ground with the assistance of another officer and two or three security guards where he was restrained, held down and handcuffed,” the judge ruled.

 “I characterize her actions as inattentiveness to rights, lack of care about her grounds for arrest and the authority for which she attended the hospital and the manner in which she treated Mr. Park after the arrest — keeping him for more than four hours completely unnecessarily.”

On June 5, 2006, Park had accompanied his elderly, cancer-stricken mother to the chemotherapy department at Lions Gate Hospital. While they did not have an appointment on this particular day, Park and his mother were in the habit of dropping in and speaking with her doctor — a habit that caused “something of a nuisance to the oncologist,” according to court documents.

This time the doctor flatly refused to speak with Park and his mother and threatened to call security if they did not leave the department.

Park and his mother decided to complain to hospital administration but were stopped on their way by two Paladin Security guards who told them to leave the hospital and that police were on their way.

During case proceedings in November, the court heard as evidence an audio recording…

When Cpl. Norman refused to let Park leave on the grounds she was investigating a disturbance and now the obstruction of a police officer for Park’s refusal to provide identification, the verbal altercation escalated and Park was forced to the ground and handcuffed in front of his mother and a crowd of hospital staff and attendees.

 “I place emphasis on the following: Mr. Park was arrested in the presence of his ailing mother who was dying of cancer,” Judge Baird Ellan explained before announcing the damages.

“If Cpl. Norman had just asked Mr. Park to go outside with her and discuss the problem it likely would have been diffused. She acted insensitively not only to Mr. Park but to his mother whom she knew was both present and a patient at the hospital. I can conclude that it would have been traumatizing to the mother… to see her son taken down and carted away.” …

Soon after the ordeal, Park’s mother succumbed to her illness …”

Read more here

More thoughts on retirement planning

An article posted by CNBC.com—Bust of the Baby Boomer Economy: ‘Generation Spend’ Tightens Belt—proposes a gloomy economic future due to Boomer ageing.

Jessica Rao, the article’s author, argues “because of severe recession and stock market losses, Boomers have less to spend, and further, they’re entering a post-career life stage when they will reduce spending anyway.”

While this story may be accurate in aggregate—overall national economic growth may decline from loftier times 15 years ago, due to many factors including global competition.  But first, we have to worry about getting enough money to retire.

We are not rational, autonomous, micro calculators who exercise independent and unbiased judgment when it comes to our retirement plans. Most of us strive to maximise our self-interest, but for a variety of reasons we often fail to act in accordance with the expectations of rational economic and financial theory.

Some of us have self-control problems when it comes to saving;. Others of us simply over discount the future and overvalue the present; we could benefit from pre-commitment pension savings programs. Still others of us may be unduly influenced by our ability to make or not decisions and as a result, our attitudes and action diverge so very much; we want to save more for retirement, but we do not.  Also, some individuals only evaluate their investment portfolios by past performance and risk errors cloud their judgment. 

We are overconfident about the future and have trouble cutting our losses. There are some of us who do not know what the basic questions are,  we do not know how much to save, or how much risk to take. Before the government takes steps to change what we understand about retirement planning there should be plans in place to help those of us who are rational economic agents. We could benefit from commitment devices or from education.

The problem is that contemporary education practices assume that most of us are rational agents and planners, but the evidence suggests that large numbers of us simply are not. Mechanisms must be found, whether through how plans are developed or to delegation to a third party, where workers begin practising the right behaviours when they start to work. 

Education can play an ancillary role, explaining the rationale for the way the plans were developed and alternative courses of future action. In effect, there should be a shift from education driving behavioural change to initial behavioural change preceding education.

More thoughts on planning for retirement

Why do investors irrationally rely on past performance and fail to take expected returns as well as risk into account, as modern portfolio theory suggests they should? Two behavioral phenomena may offer some answers. The first reason may be that people tend to see patterns in small series of randomly drawn numbers, and when making decisions, people attempt to impose some order or structure on the information that they see. The second reason may be that many people when faced with difficult decisions tend to rely on readily available information. A simple reason that investors may rely on past performance could be because that information is cheaply available.

The following ideas may help us understand how we make the investment decision we make. First, when we are thinking about how much we will gain, many of us are often overconfident and filled with excessive optimism.

We tend to, in our minds, build forecasts of the future that are typically too rosy. Second, when we are considering how much we could lose, risk-aversion may lead some of us to over react to what we are actually losing in our investments or because of fear of a loss, we will take investment gains earlier than we should. And third, if our decisions are less than ideal due to both overconfidence and loss avoidance, the impact of these will be exacerbated by how we have framed the issue and we tend to have narrow frames around gaining or losing money.

One of the important findings of psychology is that peoples’ future forecasts are often characterized by widespread overconfidence and excessive optimism. Such overconfidence may partly be the result of an inability to understand accurately the role of random chance in determining the future. People are notoriously poor statisticians, and they find patterns and trends in data that could just as easily be explained by random chance.

Poor risk calculations certainly play a role in overconfidence: individuals who are “100% sure” of their responses to certain questions are usually wrong 20% of the time. Our perceived sense of control also plays a role: the stronger one’s sense of control, the more powerful one’s sense of confidence

If overconfidence helps explain behavior on the “upside” then the “downside” is dominated by aversion to loss realization. This may play  out in interesting ways. For instance, as people are inclined to take a gamble if confronted with the choice of realizing an incurred but not-yet-realized loss, versus taking the gamble in which they might break or lose more. If there is a reasonable prospect of breaking even and avoiding a loss, many people take the gamble and risk losing even more money

There is evidence that overconfidence and loss-aversion are intensified by too narrow a framing of risky decisions. Few of us would take a gamble involving a 50 percent chance of winning $1,500, versus a 50 percent chance of losing $1,000.  

Some studies suggest that losses are as much as twice as psychologically powerful as gains. Other studies indicate that losses are almost three times more powerful than gains. What this means is that most of us would not take the gamble until the gain was closer to $2,500. Yet experimental evidence indicates that if we are given the opportunity to accept this gamble many times, or when it is framed in terms of changes to their entire net worth we will take the gamble.

Perhaps it is more natural for us to think small when facing a one-time gamble, but because we think we may get it right over time then we think large and take the gamble.

The last phase of financial decision making for retirement happens during later middle-age and beyond, and it is the period when most people decide how they will spend down their accumulated assets. Because most of us do not know precisely how long we will live, we do not want to run the risk of exhausting our assets before dying.

We can do this by reducing what we consuming less per year during retirement, but of course this simply elevates the chances that a we might die with “too much” wealth left over. This is fine if we want to leave our wealth to our heirs, but a few years back I saw many bumper stickers that say “I am spending my children’s inheritance”, which I agree with for the most part, but today those bumper stickers are few and far between

 Interestingly a recent survey reported that only one-third of the respondents knew that if someone who attained the age of 65 they had a substantial chance of living beyond his/her life expectancy.

More thoughts on planning for retirement

I was talking to my accountant about planning for retirement and he mentioned that there is one thing that young people and my people age do not plan for. He mentioned that people including sonic boomers have roughly $3,000 to $6,000 in medical bills not covered by any plan. He also said that many of his clients who are living on just Old Age Security and the supplement are sitting on homes that are paid for, and if sold would help the person have a better quality of life. He said that when he mentions this his clients respond with this sentiment: I would love that but if I do, what would I leave my children?" 


So poor planning and misguided sentiment (in my mind) leave people living in poverty or near poverty. I am sure that people understand the need to save, I am not sure why they don't save. That is why I found the ideas expressed by Olivia and Stephan interesting, I hope you do as well.


What might explain this apparent inability to plan properly for retirement? People try to save for retirement, but they too often not able to execute intentions. In a sense, saving for retirement requires behavior similar to those undertaken in other behavior modification programs such as exercising, dieting, quitting smoking, or following through on New Year’s resolutions. In other words, a key obstacle to saving more is not necessarily lack of awareness, but rather the ability to take action on the knowledge.  Here are some reasons why this happens.

People understand their inability to act even when they have good intentions and often seek to protect themselves through the use of commitment devices, or mechanisms that help foster desirable changes in behavior.

“Pay yourself first” is one of a number of standard commitment device used by financial planners and others who want to encourage disciplined saving and budgeting. Other commitment devices include tax refunds and Christmas or other Clubs, where individuals engage in economic activity that on the face of it are not economically sound (e.g. loaning money to the government or to their local banks at below-market rates). What the individual gets in exchange is a disciplined approach for accumulating savings. Another commitment device that is used by the government is to impose high penalties and withdrawal restrictions on retirement plans. The idea is that once the money is allocated to these plans, a psychological and financial hurdle is imposed on the individual accessing the money, which will help to counteract lapses in personal willpower.

People can be easily influenced by decision framing. In traditional economic theory it is assumed that rational economic agents (individuals) would not be expected to vary their responses to a question based on how it is asked. We know this is not the case. The simple rephrasing of the saving question elicits a different response in plan participation rates. Researchers have shown that when workers whenA faced with the option that requires them to sign up for a savings plan then they do nothing. If the employer institutes an automatic enrollment plan (that you can opt out of at any time) with a saving rate specified by the employer or the union more people save at the rate specified by the employer. This behaviour is explained by the idea that when confronted with difficult decisions, individuals tend to adopt shortcuts that simplify the complex problems they face. One simple shortcut is to accept the available default option—i.e., rather than making an active choice, accept the choice made by others. For one large US firm, plan participation rates jumped from 37 percent to 86 percent for new hires after automatic enrollment was introduced.

Evidence reveals another anomaly about individuals and their saving behavior: the important impact that inertia or procrastination plays on decision-making.  Researchers have concluded that, many of us follow “the path of least resistance” in our decision-making. We make the easiest, rather than the best, decision. This passive approach to decision-making is indicative of individuals being somewhat imperfect rational economic agents in their retirement and savings decisions, especially when there is a great amount of choice.

Offering workers many investment choices can produce choice overload; faced with complex investment choices, some participants may elect to simplify the decision by following their default plan, i.e., don’t decide, don’t join the plan, or find out what friends at work are doing. Many of our saving decisions can be strongly influenced by peers.

Just as our saving choices can be affected by framing, so too can our investment decisions be influenced, sometimes strongly, by framing effects.