This article originally appeared in the Globe and Mail.
By Linda Nazareth, April 15, 2022
Retirement with low inflation is one thing, but retirement when grocery and gas prices are soaring is something else. Given that reality, a Canadian inflation rate at its highest level in decades may have some older workers putting off retirement or perhaps even re-entering the work force as a way to cope with rising prices. That may be good for the economy in some ways, but is hardly going to be met with applause by all.
The economic data we have seen in the past few months has been wild. Canada’s inflation rate hit 5.7 per cent in February, its highest level since August, 1991. Motorists paid as much as 32 per cent more for gas than they did a year earlier, while food purchased in stores was up by more than 7 per cent. Given that wages are only rising at a rate of about 3.4 per cent, almost no one is seeing earnings keep pace with the price hikes. Of course, workers are starting to negotiate hard-to-change things, which is unfortunately only going to make the inflationary cycle worse. No surprise then that the Bank of Canada has hiked interest rates by 75 basis points so far this year and warned that they are not done yet. Eventually, their actions may drive inflation down, but it will not happen overnight.
With prices continuously headed up, retirement now requires a new set of calculations, and the solution may be to keep working. After all, being on a fixed income when prices rise unambiguously means that you can afford less. If your retirement income is not fixed but rather is based on the strength of the financial markets, things might look even worse in what is a rising-interest-rate, high-inflation environment. Under the circumstances, learning to love the office may not seem like a bad option.
The data suggest that even before the last inflationary surge, most people were not voluntarily choosing early retirement. As of March, the employment rate (per cent of workers in the age group who are working) of Canadians from 55 to 64 was 63.6 per cent, around the same level it has been for the past year. Although it fell a bit earlier in the pandemic, it quickly moved back to normal, perhaps because older workers did not face the disruption of having to care for or home-school young children, and chose to make money if they could. The question is where that rate goes from here, and indeed where the employment rate of those over 65 (which was 13.4 per cent as of March) goes as well.
Looking to past recessions is only partly helpful. In the 1970s and ’80s, for example, inflation was high, but since many workers could look forward to pensions that were not too different than what they were earning, they did not delay retirement. These days, far fewer retirees are covered by registered plans. According to Statistics Canada, as of 1977, 46 per cent of workers were covered by such, a figure that slipped to 37 per cent by 2019. As well, those late-boomer and Gen X workers headed toward traditional retirement age have experienced many disruptions to their savings because of everything from financial market turmoil to a higher propensity to get divorced than was the case in the 1970s. Inflation may be the last straw when it comes to putting off retirement.
Having older workers hang on longer may be beneficial in several ways, not the least of which is that it would help stem inflation. That is, a very tight labour market with few workers available puts pressure on wages and keeps the inflationary cycle going. As well, the idea that workers may not be in as short supply as had been feared will no doubt be welcome news to companies who have been desperate to find workers and dreaded a flood of retirements,
Two groups, however, would likely not celebrate the continuing presence of baby boomers and Gen Xers in the work force. The first is, of course, those groups themselves, assuming that they would have liked to try out a life beyond the workplace. The second, and perhaps the more unhappy group, is likely to be those just a touch younger who had hoped to move up in their organizations once those long-planned retirements happened. For millennials and younger Xers, the so-called “grey ceiling” is stopping them from advancing and the idea that it will not crack any time soon will not be welcome.
Then again, they may get those promotions anyway. In many industries, some form of ageism is the norm and those wanting to stay in the labour market longer may not find it easy to do so, even with laws that say they can work as long as they want. That may well be a challenge ahead, with older workers frequently frustrated at being either unemployed or underemployed when they feel that they need the money more than ever.
Perhaps the Bank of Canada and other central banks will see swift victory when it comes to taming inflation and people can make work and retirement decisions without the extra math. Still, just as the pandemic showed all generations that things can change on a dime, the rapid rise in prices is showing us that we cannot be complacent as to what a set amount of money can buy and that fact is going to weigh on all kinds of decisions for some time to come.
Linda Nazareth is host of the Work and the Future podcast and Senior Fellow for economics and population change at the Macdonald-Laurier Institute.