Thursday, April 06, 2006

Retirement Crisis and Real Estate

RRSP contributions have plunged over the last five years, and the national savings rate has hit zero. During this past election campaign, as I went from door to door in affluent areas of $500,000 and million dollar homes, I encountered scores of people who freely admitted they might have fancy homes, but they have no money. Sound ridiculous? Far from it! These are people who decided years ago that they would plow their cash into real estate and eschew the perceived risk of financial markets by investing nothing in stocks, funds, bonds or trusts.

Given the costs of living, the cost of real estate, soaring property taxes, energy costs and rising mortgage rates, the strain on cash flow is immense right now. Salaries and wages have hardly risen at all since Nine Eleven, while inflation - modest at 3 per cent or so - eats away at disposable income.

The average RRSP holding has actually declined over the past decade, and now the half of Canadians who have retirement savings have sated away only about $40,000. Worse is the fact the average age of the half of us who have saved anything is now north of 45 years. At this rate there is about a 100 per cent chance that there will be a personal financial disaster in another 10 years, when those nine million Boomers are in their mid-sixties, short on financial assets and heavy on real estate, long after the current housing boom has ended.


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