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We wrote a blog about the Marshmallow Test some years ago. That’s when kids are given one marshmallow and are told if they refrain from eating it for a certain period of time, they will get another marshmallow.  Few can resist that marshmallow and wait for the second.

Now as the Boomer generation is retiring, the cold hard facts make it clear that much of that generation has failed the marshmallow test.

In the United States around half of US households have no retirement accounts at all. No 401Ks, no IRAs, nothing.

In Canada, the numbers of aging boomer prepared for retirement are lower and declining  According to StatsCan, between 1977 and 2011, the proportion of the overall Canadian employed population covered by registered pension plans (RPPs) declined from 52% to 37% among men, mainly because of a drop in defined benefit (DB) plan coverage. (DB plans include company pensions where employees contribute and the funds are managed to provide a defined retirement income.)

Among women, RPP coverage increased from 36% to 40% over the same period.  This shows how women made major advances, moving from part time jobs into higher paying positions with larger firms over the time period.

In 2012, 33% of employed women and 24% of employed men aged 25 to 54 were covered by Defined Benefit plans.  Men’s previous advantage declined with the reduction of unions and downsizing of corporations.

So the trend is clear – better save for the long term yourself.

Pension Trend (Stats Can 2012)

But as the marshmallow test showed, few have the personal discipline to do so.  Why?

You might think that’s because they’re all expecting government pension income in retirement.

In Canada, Old Age Security is being phased back to kick in later than 65, if you last that long.  A Bank of Montreal survey found that 89 per cent said they would have to rely on the CPP or the Quebec Pension Plan when they stopped working.  That means only 11% of Canadians have passed the marshmallow test.

Looking at overall net worth tells a similar story. According to the US Census Bureau, the (median) average net worth excluding home equity for an American in the 55-64 age range is $45,447.

Net worth might look better if you include home equity, but not everyone can tap into that equity to pay for retirement.  After all, you have to live somewhere.  The 2009 financial melt down showed how US borrowers lost big time when they leveraged against their home equity.

The average payout of CPP is just a little more than $550 per month – a long way from the maximum of slightly more than $1,000.  Remember, you have to pay in to draw out.  Add to that the OAS of $570.52 per month in 2016 and you are not exactly sitting poolside sipping margaritas while munching on barbecued steaks.  The CPP and OAS are meant to be supplements, not your sole source of income.

So what to do?  Well once the genie is out of the bottle, there is not much those 89% of retirees can do except keep working and hope they can cripple through.  A recent BMO Poll suggested 34% of Canadians are counting on a lottery win to fund their retirement.  Now there’s a long shot!

The situation is mostly a cautionary lesson to the families of those aging boomers.  If you don’t discipline and self sacrifice, you too will be living on spam and beans when you get older.  Better start training yourself to wait for the second marshmallow.


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