Low interest rates hit seniors
When Barrie and Agnes Boutilier realized their Canada Savings Bonds were only paying 1.8 per cent, they cashed them in and put the money into an ING Bank account paying one per cent more.
It’s not much, but they figured after inflation, at least they weren’t losing money. They also wrote an angry letter to the federal government. Finance Minister Paul Martin replied.
“He said the government matched competitive market rates. As far as I’m concerned, they could have afforded to give seniors and other people trying to help the country a little better break than they did,” says Barrie Boutilier, 70, who lives in Burnaby, B.C.
Low interest rates
Earlier this year, interest rates dipped to the lowest levels in 40 years. That’s great for anyone taking out a car loan or mortgage. But as rates continue to hover around two to four per cent, it’s terrible for anyone living off retirement investments.
“We’ve just got to watch our expenditures much more closely than we ever thought we’d have to. We saved hard, and kept a pretty low profile, didn’t blow the money too much while I was working. We were looking forward to a pretty coortable lifestyle. And it hasn’t been uncomfortable yet. But let’s just say we could use it up pretty quickly, if we had a mind to,” says Boutilier, who retired eight years ago.
Depleting their RRIF
That’s exactly what’s worrying Ziggy Wozny, 83, in Richmond, B.C. He and his wife, Anne, 79, retired 18 years ago and a good portion of their income comes from Ziggy’s registered retirement income fund (RRIF).
The principal in this fund is around $48,000 and Wozny is required by the federal government to make a minimum withdrawal of just over $4,000. That figure is based on his age and the amount of money in the fund.
“The government is now digging into my original investment. Thinking of the future, and low interest rates, and the RRIF disappearing-who knows. We may not have enough money. Will we have to go on welfare? It doesn’t seem fair,” says Wozny.
Many retired Canadians depend on income from investments, registered retirement savings plans, income funds or annuities to top up their pensions. And the federal government gives tax breaks to encourage Canadians to set up retirement funds. These investments are meant to give retirees a better than marginal living.
Next page: Older Canadians issue
Older Canadians issue
However, government policies are not keeping pace with economic realities-especially the negative impact of low interest rates.
Dave Magrel, 60, and his wife, Judi, 55, live in Winnipeg, MB. Dave retired three years ago, after 40 years with the same company. He says low interest rates are an issue for all older Canadians.
“I don’t have that good a pension that I can join a country club or take a trip to Europe every year. I’m a middle-income type of guy. And where it hurts me is not the basics, but the extras,” says Magrel.
He and his wife put money into registered retirement plans and an annuity to provide some comfort in their retirement. They’re also counting on the income from their investments for any future rainy days-possible retirement home costs or unforeseen medical and drug bills.
“I want to have this little pot there, as well as my existing pension, the OAS (old age security) and CPP (Canadian pension plan) to provide for what we may need as we get older,” says Magrel.
Magrel admits readily it’s not a complete disaster for him and his wife. He says he planned for 15 years for his retirement, with a good cross section of mutual funds. But the part of his plan in savings “is a complete disaster. And I’m sure there are a lot of people hit a lot more directly than we are.”
CARP getting calls
Judy Cutler, the Communications Director for CARP, says he’s right. Canada’s association for the 50plus is receiving numerous calls from seniors about low interest rates and their savings.
“It’s not the poorest retirees who are suffering. They don’t have savings or investments. And the sacrifices of the wealthier ones are not usually desperate. But, take someone who supplements their OAS with a few hundred dollars a month from interest on savings or investments, cut it in half or more, and the results can be dire,” she says.
“People are having to dive into the principal of their savings. When you’re already paying 80 per cent of your income on accommodation and food, then losing investment income can have a serious impact on your quality of life and both your physical and psychological health,” says Cutler.
Next page: Has negative effect
Has negative effect
Ziggy Wozny says for him and Anne, the worry about low interest rates “has a negative effect on your existence.”
“At my age, we don’t require that much. We don’t travel anymore. But I used to support various charities. Now I’m being more selective. And we’re trying to make the car last. It’s 13 years old now and we certainly couldn’t afford to get a new one,” he says.
Wozny says his mother died recently at the age of 104, so “I feel that I shall survive a few years yet.” He and Anne live in a condominium, but “one of these days we may have to move into one of these places where they want a couple of thousand dollars a month.”
Worry about future expenses is one of the reasons he’s complaining about mandatory RRIF withdrawal rates. These rates are based on the assumption that investments funds will bring in at least six per cent, according to calculation tables provided by the federal government.
Now that interest rates are so much lower, these forced withdrawals actually deplete the principal of the fund. So there’s less money left to generate income, as in Ziggy Wozny’s case.
Cutler says the federal government must take account of low interest rates and the impact on seniors. She says CARP has several recommendations:
- Adjust mandatory RRIF withdrawal rates to reflect prevailing economic conditions.
What to do
Dave Madrel is on the younger side of retirement. He’s also active in managing his investments. But even he says the current conditions are difficult.
“You cannot plan for what we’re going through. The only way I’ve been able to do it is to ladder my GICs, that is, stagger them. You also have to look at your investments, and get rid of some over the years. And as you get older, go more to the blue chip type of mutual funds, and hope to dear god things work out.”
He says interest rates will eventually change. “The problem is, anyone well into their 70’s or 80’s, they don’t have time to wait it out.”
That’s precisely the predicament facing the Boutiliers and the Woznys. A change in mandatory RRIF withdrawal rules would bring some relief, both couples agree. And Ziggy Wozny has written to the government outlining his case.
“It’s really cruel. We’re the people who worked hard, saved our money, sacrificed a lot of things, fought in this country’s wars. The government are real rascals about this,” he says.