“Greyer” workforce retirements rise, creating skills gap: TD

If you think you’ve noticed more grey heads around the office of late, you’re not wrong — but things may be about to change.

According to a new report by TD Economics, cited in an article in Wealth Professional, while more older workers than usual are currently employed, their pending mass retirement “is a risk to the economy if it is not addressed.”

James Orlando of TD tells Wealth Professional that the problem is that “many Canadians who would have been eying retirement have chosen (or perhaps been forced) to work longer than expected. But older workers will not stay in the labour market en masse for ever.”

It’s a bit of a good news, bad news situation, the magazine reports. Older workers who have delayed retirement have “provided an important buffer for those businesses that would otherwise be struggling to fill skills gaps,” the article points out.

In fact, the article continues, this “greying effect” on the workforce, where workers aged 55 and over stay in their jobs, has been happening since 2020.

Had older workers been retiring at the same rate they did 20 years ago, Wealth Professional reports, there would be an eye-popping one million fewer older people in today’s workforce.

It’s felt, the article tells us, that “lower asset values and rising housing and energy costs” are reasons the older gang is still at their desks — concerns about inadequate “pension pots” is another, the article adds.

Now for the bad news.

Figures show a “17 per cent increase in the number of retirements in 2022 compared to the prior two years, with 266,000 people retiring through the end of last year,” the article reports.

This trend, the article continues, is expected to continue “and with a projected one million over-65s by 2025, this could mean 900,000 retiring based on current participation rates.”

Put another way, that’s a 50 per cent jump in the retirement rate.

Orlando tells Wealth Professional that “businesses cannot ignore the likelihood of losing both the headcount and the knowledge that is in those heads.” He states that there is a need to address the skills gap through greater training of young people and through finding room for people with “foreign credentials and experience.”

“The aging of Canada’s existing population is opening the door to make the structural changes necessary to bring in, integrate, and support all current and future Canadians. Therein lies a huge opportunity for Canada,” Orlando tells Wealth Professional.

We’ve seen similar stories that talk about mass retirements in certain key sectors, such as healthcare and in skilled trades. If there is a positive side to this story, it’s that a once-in-a-generation time of opportunity is presenting itself to younger workers willing to up their skill sets.

Changing jobs often means changes to your workplace pension and benefits. But a job change is no biggie if you’re a member of the Saskatchewan Pension Plan (SPP). Because your SPP isn’t tied to your employer but to you, you can continue contributing at your new job, even if it’s in a different province or territory. This level of portability makes SPP a pension benefit that travels well!

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Higher interest rates spell trouble in ’23 for borrowers

A wise colleague once told us that debt was “the slayer of retirement dreams.”

And, according to an article by Pamela Heaven in the Financial Post today’s rising interest rates are giving that slayer even more teeth.

The article notes that at least one more rate hike is expected from the Bank of Canada early this year, which will bring the policy rate to 4.5 per cent. That compares to a rate of 0.25 per cent at the beginning of 2022, the Post reports.

The article quotes a TD Economics report that suggests that the impact of a rising policy rate for Canadian borrowers has “only just begun.” That’s because there is usually a lag between the start of higher rates and the end of a mortgage period or car loan, the article explains.

“Debt service costs rise with a lag as mortgages and loan payments are renewed at current market rates,” state the authors of the TD Economics report in the article.

While household debt levels actually dipped during the lockdown years of the pandemic, they are experiencing a sharp rise today, the article notes.

“Canadians who piled on debt when it was cheap now have to contend with interest payments on debt that is more expensive, and could get even more so,” the article adds.

“Up to 18 per cent of fixed-rate mortgages come up for renewal (this) year and borrowers looking to renew will be facing the highest interest rates in 20 years,” the article says, again quoting the TD Economics report.

“In the third quarter of (2022), a borrower who took out a $500,000 mortgage in 2017 was paying $700 more a month on renewal,” notes the TD report.

Well, one might think, it’s good that we all saved so much money during the pandemic’s lock-downiest days, right?

“One bright spot is the personal savings that Canadians accumulated during the pandemic, which could provide a cushion to rising debt costs. However, with interest rates expected to remain at higher levels over 2023, TD expects much of these savings will go to paying debt costs,” states the article.

If there is any positive news about higher interest rates, it’s the fact that Guaranteed Investment Certificates (GICs) are suddenly looking more attractive.

Writing in The Globe and Mail, noted columnist Rob Carrick asks why people are risking investment dollars in the volatile stock market when GICs and other fixed-income investments are offering interest rates close to five per cent.

“In the low-interest decades of the past, stocks were essential to reach your investing goals. But with 5-per-cent returns available from both bonds and GICs, how much do investors need stocks?” he asks.

It will be interesting to see, as we move along in 2023, whether more investors do begin to shift some of their investments towards less volatile fixed-income. Save with SPP can remember that crazy days of the late 1970s and early 1980s when interest rates were in the teens, and you could expect 18 per cent interest on a car loan. It doesn’t seem (today) like we are anywhere near those bad old days — thank heavens!

A balanced approach is usually a wise one when it comes for investing, and members of the Saskatchewan Pension Plan are aware of the “eggs in different baskets” nature of the SPP Balanced Fund. Looking at the asset mix of this fund, it appears that 40 per cent of investments are in Canadian, American and global equities, and the rest is in bonds, mortgages, private debt, short-term investments, real estate and infrastructure. Keep your retirement savings in balance, and check out SPP today!

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