Written by Derek Miedema, a researcher at the Institute of Marriage and Family Canada

Canada’s population is aging. That huge chunk of our population that is the Baby Boomer generation is almost 65. And in keeping with their reputation for being trendsetters, Baby Boomers have again distinguished themselves – this time by their lack of retirement savings. In 2007, Statistics Canada found that only six per cent of available RRSP savings room was used by eligible taxpayers. And with many pension plans now underfunded, the nest egg that many Boomers are relying on may not give them the retirement income they expected. While efforts are being made to address these problems, will this be enough to fund the Boomers’ retirement and old age?

Some positive changes have already been implemented. In 2007, the federal government introduced pension income splitting for seniors. This means that retired spouses who have differing pension levels can balance out at a lower level of income and thereby pay less income tax, leaving more money in their pockets.

This move was made shortly after the federal government announced changes to the tax structure of income trusts, severely impacting the savings of seniors who had seen these as a great way to save for retirement.

Barbara Yaffe highlighted a second beneficial adjustment recently in the Vancouver Sun: “The stars have mercifully aligned so that, in an era of depleted retirement savings and underfunded company pension plans, most mandatory retirements have been struck down by the courts.” Where this has happened, employers can no longer force a person to retire just because they’ve turned 65.

While Baby Boomers raised with a Freedom 55® mentality might not find this very encouraging, employers and many seniors may be happy about it. Now, seniors delaying retirement may have the chance to work in a reduced role in order to allow for a starting employee to be hired, and then mentor that person into their job. One person quoted on CBC.ca described such an arrangement this way: “Happiness,” he said, “is working at a job you enjoy for which you are vastly overqualified.”

But then, there are those who can’t work. Many Baby Boomers will need the help of their children, who are themselves in middle age and perhaps just starting to seriously consider their own retirement needs. A survey by the Investor’s Group released in mid-October found that 40 per cent of those surveyed were supporting one or more parents to an average of $498 per month, or roughly $6,000 per year. And as these parents age, it’s likely they will require more financial support, just as retirement begins to loom for their children. Fewer children paying for the care of more seniors is hardly a balanced equation.

If the children of Baby Boomers are not able to save as much for their retirement because of the need to support their parents, how can we address what may become a cross-generational financial crunch? Income splitting for low and middle-income middle-agers would be a way to support both Baby Boomers and their children as they each prepare for a retirement in which the government and work pensions may play a smaller role as the years go by.