BY JIM PITT
Special to the VOICE
Farmers have a saying: Don’t eat your seed corn. It means that you should never eat the seeds you are saving for the next growing season, because if you do, well then obviously you won’t have anything to plant. You will probably lose the farm and starve.
Over the years governments have sold their seed corn to make the books look better. The Harris government sold the 407 highway to balance the budget just prior to an election. The Wynne government has sold a stake of Hydro One for the same reason.
Now the Town of Pelham is in the process of selling our Haist Street arena land to help pay for the folly known as the Two Arenas.
The Town has already plowed through the reserves and maxed-out the credit cards, so to speak, and now it’s desperate. Yet these public assets are not the property of any particular government, nor the politicians temporarily in charge of it. Unfortunately, legality and morality don’t coincide on the matter, since our politicians are free to sell the seed corn for whatever bargain price they can beg, leaving us mere residents footing the tax bill later, long after the pols are gone.
Canadians in general are also selling their seed corn. Let me explain.
The oldest and most used method of retirement saving is the RRSP, or Registered Retirement Savings Plan. This program was set up long ago as a means for Canadians to save for that unknown duration of time after working. It could be a tragically short time or an uncomfortably long time. Uncomfortable, that is, if the money runs out.
In a previous column I outlined the enormous amount of debt Canadians are taking on. Home equity loans, lines of credit, car payments in the form of long term loans or high monthly leases, and credit card debt are at all-time highs. Payday loans are also on the rise. People who are insolvent are the worst offenders in this market. For every dollar they earn, they owe $1.34 to a payday loan operator. But this extra money is still not enough.
A recent survey by BMO found that 40% of respondents at some point took money out of their RRSP. The amount that is being taken out is also rising and now averages $20,952. However, you don’t get that amount. You get $14,667 after the 30% withholding tax, and you may still owe more to CRA.
When you retire you can collect CPP. The most you can receive is around $1,100 per month, or $13,200 annually. Very few Canadians receive the maximum. The average amount this year is about $7,700 annually. At 65 you can add the Old Age Security payment of $586.66 per month, or $7,039.92 annually. This will give you a total of $14,739 in government pensions. Obviously this will not be enough for anyone’s retirement.
In the past, many employees in the private sector had defined benefit pensions. These provide an annual pension that is inflation-adjusted and guaranteed. These types of pensions are disappearing and are now only common for government employees. In the distant past it was felt that, since government workers were forgoing the luxurious pay found only in the private sector, an indexed, guaranteed pension would help even the playing field. That was the distant past.
Today many government workers, especially senior workers, are paid more—much more—than their private sector counterparts. Most private sector employees now have a defined contribution plan. This plan matches dollar for dollar contributions from the employee and the employer, or a percentage. This money is usually handled by an insurance company or mutual fund salesperson. The money may grow, but more likely it languishes in a high-fee, low-return investment of some type.
The RRSP is designed for an individual to top-up their maximum allowable contribution into their own investments, which they can manage. This money is your seed corn. Don’t eat your seed corn. What has brought on all of this irresponsible behaviour you might ask.
I put it down to a new mindset shared by many. This debt-will-pay-for-itself crowd have yet to experience the consequences of this type of thinking. Those who have, and are spending wildly anyway, have short memories, or are, by nature, gamblers.
When you gamble away tomorrow for some treat for yourself today, you are risking your retirement lifestyle and others’ as well. If enough people find themselves in financial difficulty after retirement, then governments will react. They will raise the taxes of the people who have money to pay the people who do not.
If people are raiding their seed corn to survive, then society has a problem that we all must help pay for.
But when people are eating their seed corn to pay for a lifestyle they cannot afford, to buy things they don’t need, or to put on a front to impress others, then they have a problem that only they should pay for.