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T Prosperous baby boomers: will they outlive their capital? Dollars & Sense Peter Watson Guest Contributor 17 | Thursday, May 2, 2013 | OAKVILLE BEAVER | www.insideHALTON.com here is an alarming similarity between our congested highways and baby boomers travelling towards a nancially uncomfortable retirement. Anyone who has commuted from Toronto to Oakville will know what I mean. The QEW highway heading west is congested causing you to slow down. Then the 427 dumps more traf c onto your route further reducing your travel speed. A few kilometers ahead, thousands more cars increase your commute time as the 403 merges into the QEW. A commute that should take less than one hour can last more than two hours. This congestion is similar to baby boomers travelling towards retirement who are confronted by excessive personal debt and the increasingly high costs of children's post-secondary education disrupting their plans. Here, we have the baby boomers' perfect nancial storm. There is the convergence of meeting our retirement savings goals with the need to pay off debt and nance our children's education; all at a time when personal debt is at historic highs. The back drop to this potentially dangerous time for baby boomers has a few additional elements that are cause for concern. There is the myth that many will just work longer; however, job security is question- There are several reasons why they (the middle class) will be the least comfortable during retirement. Their standard of living is high, so more cash ow is required to support the extras to which they have become accustomed. able. The younger generations are more energetic, mobile, eager to nd work and willing to take a lower salary. One nal reality is that life expectancy is increasing. Many who enjoy living longer will not be able to afford their desired lifestyle in their later years. This will be more problematic for women because most outlive men. Not all segments of the baby boomer generation will be affected equally by this gloomy picture. Some groups will be more negatively impacted than others. McKinsey & Company's recent report, titled Are Canadians Ready for Retirement?, suggests the category at most risk in failing to meet retirement goals is the comfortable middle class. Those less prosperous have lower nancial expectations so government retirement programs such as the Canada Pension Plan, Old Age Security and potentially the Guar- Certi ed Financial Planner Peter Watson anteed Income Supplement will cover their living expenses. At the other end of the spectrum are the truly wealthy. They have accumulated enough to maintain their expensive lifestyle. While both ends of the nancial spectrum are nancially sound, it is the middle class that is most at risk. There are several reasons why they will be the least comfortable during retirement. Their standard of living is high so more cash ow is required to support the extras to which they have become accustomed. The McKinsey Report predicts 23 per cent of Canadians will not be adequately prepared for retirement. Households with an annual income of more than $90,000 are 10 per cent more likely to not be suf ciently prepared to retire than the national average. Thirty-three per cent fall into this category. The highest segments of the Canadian population that will not be prepared for retirement are households with an annual income in excess of $140,000 where 41 per cent will fail to meet their retirement goals. Many baby boomers have enjoyed strong earning power and a comfortable lifestyle. Their future is far less appealing than their past. Lifestyle decisions have led many boomers to accumulate signi cant debt levels. Effectively, they have been living beyond their means. How can they expect to maintain a lifestyle on a reduced retirement income when they couldn't afford their lifestyle during their working years? The middle class is less likely to have employer pensions and for many, their investment portfolios, for various reasons, have not grown as expected. When adding the increasing costs of living longer, it becomes evident that many baby boomers will be nancially challenged. In my opinion, outliving their capital is the legacy that many of the "prosperous" baby boomer generation will leave behind. -- Submitted by Peter Watson, MBA, CFP , R.F .P ., CIM, FCSI., Certi ed Financial Planner