Old age insecurity

Should we give people money because they get old?

On this blog we’ve debated government pogey for wrinklies. It costs a fortune to send OAS to people who turn 65, then goose it again at 75. This year it’s $75 billion. By 2027 it will be $85 billion. More than paying people to have kids plus the armed forces, combined. More than health care. The biggest single government expenditure. It’s huge.

OAS is $713 a month. After 75 it’s $784. If you wait five years to take it, the benefit grows 36%. This year taxes will start to claw the cash back at an income of about $91,000 and it’s all gone by $148,000 (or $154,000 if over 75).

A key point to remember is nobody contributes directly to their OAS. So it’s unlike CPP, funded by employers and workers then managed by an independent agency. The Old Age Security comes right out of government coffers, sourced from tax revenue and (these day) by borrowing. In other words, if there were no OAS there’d be no deficit and a government surplus this year of about $35 billion.

Many kiddos apparently think that money should be spent on them. So, the OAS debate made the leap to that online swamp called Reddit, where it’s been the #1 topic of money debate this week.

“It’s not a topic that gets much attention, but clearly it has struck a nerve,” says blog dog Grant.. “The main point is that there are a lot of people who don’t believe that well-off Canadians should be able to receive government assistance through OAS. The fact that a couple can own millions in assets and have an income of $182k and still receive $17k in benefits does seem overly generous for a country running deficits. What do you think?”

First, here’s what the lead Redditer is arguing:

The more I learn about OAS, the more I wonder why this isn’t the #1 issue that Canadians are talking about, especially younger Canadians. Given the massive amount of money we spend on this program (it is single biggest line item in the federal budget), this program feels like the root cause of a lot of Canada’s issues. After all, how can we invest in the things that matter when we spend a giant and growing portion of our budget on OAS?

• OAS was created at a time when seniors had the highest poverty levels in Canada and there were 7 working-age adults for every retiree. Seniors now have the lowest poverty rates of any age cohort in Canada. (In other words, it feels like we are spending all this money to solve a problem that doesn’t even exist anymore.
• Assets or net worth is not taken into account for OAS payments. In other words, multi-millionaires can easily game their net income to make sure they are receiving the full OAS benefit.
• OAS spending will only continue to get worse given our aging population. Without any change to the program, the number of beneficiaries will grow by 53% from 2020 to 2035.
• Low-income seniors already benefit from GIS, which could also be enhanced as part of any OAS reform.
• Those aged 65+ are already more likely to have benefited from many things that future generations likely won’t have access to, including massive run-ups in real estate value and workplace pensions.

Personally, if I think of all the things I’d like our government to invest in, they all seem impossible without either reforming OAS or adding to our enormous federal debt. Yes, we can quibble about other areas of spending, but they are all small potatoes compared to OAS. It is wild to me that this issue gets next to no attention. Does anyone else feel like OAS reform is the single biggest thing we could do to improve the future prosperity of Canadians?

It’s true OAS is welfare for the aged. Also true demographics is against us these days. We have an aging population with increasing longevity and advanced medicine keeping people wheezing for longer. True as well that there’s a massive wealth divide in Canada with Boomers are considered to be the elite. Plus, of course, the escalation in house prices makes the Mills, Zs and (soon) Alphas resentful of those who were born decades earlier and picked all the low fruit.

But there are some realities.

First, any government that nips OAS benefits, extends the qualifying age or drops the clawback hurdle, will be defeated. Harper tried it. He lost. Trudeau restored and enhanced OAS. He was elected three times. See the pattern?

Second, we don’t tax by wealth in Canada, but by income. An oldie can live in a house worth $1.4 million she’s owned since buying it for $200,000, and still be in need of public assistance. That may not seem equitable, but it’s also not solvable.

Third, it’s a myth that Canada’s growing collection of old farts are greedy souls sucking off benefits they don’t need. Over 75% of those 65+ have incomes under $55,000 – which includes the OAS benefit. Fully 90% of wrinklies earn less than the clawback level (for 2023) of $81,000.

Now, try living anywhere in Canada on $55,000 (pre-tax). Even if you have real estate – which comes with heavy ownership costs – it’s a struggle. One of the enduring myths of Reddit, Generation Squeeze and the TikTok addicts is that the Boomers took all the money and are now bankrupting the country. The data says otherwise. It suggests most of these folks have been financial failures.

So the biggest question is, why? How do people live, earn money, have families and get by for six or seven decades and end up living on crumbs, bugs and government handouts?

Is it financial illiteracy? Bad planning? Excessive spending? Or did they do exactly what the kiddos are repeating, which is adopt a one-asset strategy and think that buying and paying, paying, paying for real estate would bring them security? Did they not think about income?

Before we elect benefit butchers, let’s noodle this. It may take more than Reddit.

About the picture: “Here’s a photo of 11 month old Echo, our grandson’s best buddy,” writes Barb in the Okanagan. “Hours early, she’s waiting for the click of the back gate that indicates he’s home from school. Or…a butterfly to flit past. Hope that’s decaff…”

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