When I graduated from university, just slightly after the last sabre-tooth tiger was exterminated and the cyber-tooth tygers were just emerging from their lairs, CPP was in trouble. The news was full of stories about how the plan was faltering. Underfunded, misunderstood and unappreciated the talk was not just about if CPP would go bankrupt but when it would be bankrupt.
This was also a time of high youth unemployment. I went through in Engineering rather than in what interested me because engineers were getting jobs. Some of my classmates told me they would have preferred to major in urban geography, history and pure chemistry. They had all put those hopes on hold in order to have a hope of getting a job at graduation.
When I graduated, I and most of my family and friends dispersed from our homes like heat-seeking missiles searching for the cities and towns in far-flung provinces and territories where there was work. None of us expected to get to stay near our parents. You had to be mobile to have a hope.
The Threat of CPP Bankruptcy Provides an Excellent Incentive
Against this background of determination and desperation, the warning cries about the CPP were heard. I, and many of my new hire friends, were watching our parents getting forced out of the work force by mandatory retirement and forcible “early retirement.”
Seeing their retirement financial needs led us to consider our own. They had CPP. But if we didn’t, what would we have?
Most of us, cynical and disbelieving in Ottawa’s ability to do anything useful, decided it would be up to ourselves to fund our own retirements. We started putting money in RRSPs. (There were no TFSAs.)
Early Investing Earns Dividends
The benefits of investing in our RRSPs in our early 20s are readily apparent now. All those annoying books are right: time does help investments grow.
So Why Should Ottawa Announce a Funding SNAFU for CPP?
Recently the news has been full of feel good stories about the CPP. The plan is financially sound for 75 years. The investment team is earning returns of 7% or better. Everyone should relax and applaud.
The problem with this news is it’s too good. Without fear or even better a genuine belief that CPP will be gone in 40 years, where is the incentive for an under-employed, student-loan-encumbered new graduate to save for retirement?
I waited 1.25 years after I started work to buy a TV. It wasn’t purchased, paid for in cash of course, until I’d maxed out my RRSP contribution for both of those years.
Are today’s graduates willing to live without a TV, or more realistically a cell phone, for over a year so they can save for a retirement 40 years from now? I doubt it.
What will motivate them to save?
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Are you motivated to save for retirement? Why? Please share your experiences with a comment.