Under 40? Forget Retirement Planning
Prime Minister Stephen Harper’s speech in Davos last week set off a mini firestorm when he briefly touched upon the need to make social programs sustainable as the population ages rapidly:
We have already taken steps to limit the growth of our health care spending over that period. We must do the same for our retirement income system. Fortunately, the centerpiece of that system, the Canada Pension Plan, is fully funded, actuarially sound and does not need to be changed. For those elements of the system that are not funded, we will make the changes necessary to ensure sustainability for the next generation while not affecting current recipients.
Newspapers immediately started speculating that the Federal Government is contemplating raising the age of eligibility for Old Age Security (OAS) from 65 to 67. Other rumours suggested that the Government might lower the threshold at which OAS benefits are clawed back. We might have to wait for Finance Minister Jim Flaherty to table the budget document for insight into exactly what the Federal Government is planning to do.
The current brouhaha clearly illustrates the futility of detailed retirement planning for anyone under 40 years of age because a lot can change in the quarter century left until retirement. Perhaps, as the rumours suggest, Old Age Security will be radically altered by the time today’s 40-year olds retire. There may even be significant changes made to the Canada Pension Plan. Therefore, younger Canadians should spend most of their energies in building a strong financial base — establishing a savings habit, investing the savings prudently, paying down debt etc. — and worry about the minutiae of retirement plans as they get closer to retirement.