Baby Boomers & Old Age Pensions
The year 2011 will mark a milestone event. Next year will be the first year that members of a special demographic bulge in society, known as Baby Boomers, will start to turn age 65. At this age a person qualifies to receive Canada’s Old Age Security Pension. For years now this group of individuals, born between 1946 and 1964, has been studied as to the anticipated effect their aging will have upon our society.
Corporate North America has marketed to the anticipated wants and needs of Baby Boomers for decades. Why wouldn’t they? According to some statistics, Baby Boomers currently control over 80% of personal financial assets and represent about 50% of all discretionary spending. In general, this group loves to travel and enjoy life. However, it has been noted that many Baby Boomers have become complacent with regard to their personal debt levels. As retirement years approach, trying to balance current wants and needs against the debt servicing requirement for past financial excess might become a challenge for some Canadians.
These are the same challenges that our corporations and governments are currently facing. Today, both our federal and provincial governments are being forced to deal with past budgetary excess while simultaneously trying to find and fund policies that will lead to sustainable job creation. Meanwhile, corporate Canada is also dealing with their past years of over leverage and excess. In a recent luncheon speech, the Governor of the Bank of Canada pointed out that the “global recovery will not be smooth.” Retirement expectations for many have changed to include working longer, part-time retirement, or the addition of self-employed business income. During the years prior to your retirement it would be very prudent to take a hard look at your overall financial situation. For many clients this will involve seeking good independent financial council.
If you find that you are faced with the need to reduce excess personal debts, here are ten recommendations:
1. Always pay off your debt with the highest interest rate first.
2. Establish a realistic budget that allows for principal debt repayment.
3. Set both short and long term goals.
4. Review your progress regularly and reward your successes.
5. Make the application for debt restructure/consolidation while you are still employed not when you retire. The approval process will be much easier while you are working and have a higher income.
6. Consider refinance options. A refinance of your mortgage to consolidate high interest and/or unsecured debt can greatly lower your overall borrowing cost and improve your cash flow.
7. Give consideration to what your shelter needs truly are. Perhaps selling your current residence and buying a lesser valued property might place you in a much stronger financial position.
8. Do not consider selling your house or re-mortgaging to consolidate your debts until a careful cost benefit analysis is done.
9. Always remember that the payments you make on personal debt are being made with after-tax dollars. You have to first earn the money, pay taxes on it, and pay the interest due on your debt before you can see a principal reduction.
10. Most importantly, be truthful with yourself and your partner or spouse about your finances.
Paul E. Croy
