鈥楲ive long and prosper鈥� was the Vulcan greeting from the Star Trek television series. If the federal government does not alter its rules regarding retirement savings, the Canadian version of that greeting could become 鈥渓ive long or prosper.鈥�
Many Canadians who thought they had planned adequately for a comfortable retirement face the prospect of poverty in their golden years because of a federal regulation that requires them to make annual withdrawals from their tax-sheltered retirement savings after the age of 71, starting at 7.38 per cent of the capital the first year and increasing to 20 per cent after the age of 94. Seniors who thought they were being prudent and responsible face the distinct possibility of running out of money before they die.
Outliving Our Savings, a report released Wednesday by the C.D. Howe Institute, says the rules requiring mandatory minimum withdrawals were implemented in 1992 when 鈥渢he federal government was deficit-ridden and hungry for cash.鈥� Withdrawals from tax-sheltered savings are taxable income, and the government needed the tax revenues that had been deferred when the money was set aside.
Times have changed, though, says the report鈥檚 authors, William B.P. Robson and Alexandre Laurin. 鈥淣ow [the federal government] is close to surplus, and the timing of receipt of those taxes matters less.鈥�
The timing, however, is a problem for retirees. In 1992, life expectancies were lower and interest rates were higher. The mandatory withdrawals will deplete their assets rapidly.
鈥淭oday, people can expect to live much longer after retirement, and real returns on investments that provide secure incomes are much lower,鈥� says the C.D. Howe report.
鈥淎 71-year-old man who withdrew the annual mandatory minimum from his RRIF [Registered Retirement Income Fund] could expect to deplete 25 per cent of his initial balance鈥檚 real value upon reaching his life expectancy. Now, he can expect to live to see his initial balance drop about 70 per cent, and faces a one-in-seven chance of seeing its real value drop by more than 90 per cent.鈥�
Statistics for women are similar 鈥� they could have expected to deplete 40 per cent of their account by life expectancy then, versus 80 per cent now. They have a 25 per cent chance of seeing the value drop by 90 per cent.
Seniors living independently and in good health can make budget choices that allow them to live frugally, but when health deteriorates, they face expenses increasingly beyond their control. The situation worsens when residential care is required, because those costs easily exceed income from the sa国际传媒 Pension Plan and the Old Age Security pension.
Further, many company pension plans are underfunded and in trouble, and retirees in those plans could see only a portion of the pension income they planned for. For the 60 per cent of Canadians who have no company pension, the future looks even gloomier.
We鈥檙e not talking about a trip to the south of France every year, we鈥檙e talking about food on the table and a place to live.
Robson and Laurin say the government does not need to pillage seniors鈥� retirement savings. Assets in retirement accounts become taxable upon the death of the account holder or his or her spouse, so the government will eventually get its share.
The report鈥檚 authors recommend that the mandatory-withdrawal rules be modified or eliminated altogether, which is the course we favour.
The government should be enabling, not hindering, Canadians as they plan for a decent retirement. It should not be raising the spectre of warehouse-like facilities for seniors who have the misfortune of outliving their savings.
Canadians shouldn鈥檛 have to choose between living long and prospering.
