This Trading Thoughts column expounds on some ideas to make life more comfortable for low income and middle income seniors, with one idea for Premier Scott Moe and one for Prime Minister Justin Trudeau.
We’ll start with a suggestion for the province about the drug plan.
Saskatchewan does offer seniors on the Guaranteed Income Supplement some breaks on the $25 co-payment for medications, with co-payments as little as $2.
The $25 co-payment has been increased from the original to save the province money. While $25 per prescribed medication doesn’t seem that outlandish, when the number of medications is multiplied the burden can become onerous.
The provincial goal sets 3.4 per cent of adjusted income as the level when the drug plan kicks in for everyone, including seniors.
For a senior couple living on $35,000 a year that limit becomes $1,190 a year but a couple with four medications each will pay $2,400 a year — or almost seven per cent of their income.
That number of multiple prescriptions isn’t that uncommon for seniors and becomes more burdensome because inflation has eroded their meagre income purchasing power by their eighties.
Options for the province would be to reduce the co-payment on multiple prescriptions or to increase the income levels at which reduced co-payments are charged.
These options wouldn’t be that expensive but would help a good portion of the province’s 170,000 seniors.
Now for the federal regulations on minimum withdrawals for Registered Retirement Income Funds (RRIF).
The rules require a Registered Retirement Income Plan (RRSP) be converted into a RRIF at age 71 with a schedule of minimum annual withdrawals.
The minimum withdrawal starts at 5.28 per cent and increases annually to 6.82 per cent by age 80, 11.92 per cent by age 90 and 20 per cent by age 95.
The burning issue in this withdrawal schedule is the high probability seniors will outlive their savings and become a burden on taxpayers.
When these plans were drafted over half a century ago, few seniors lived past the age of 70.
Today the fastest growing segment of the Canadian population is 85 and over, growing from 500,000 in 2006 to almost 800,000 this year.
The fear of outliving one’s savings haunts a growing number of seniors in Canada.
When the RRIF plan was devised, ivory tower bureaucrats convinced politicians that allowing large pools of untaxed savings like RRSPs to accumulate took too much revenue from income taxes.
Given the lower age expectations of the day, politicians opted for a plan that destroyed these money pools in later years of life.
Demographics have changed with an ever larger portion of seniors achieving their late 80s and 90s and facing poverty because of unnecessarily high minimum withdrawals.
It is a known fact that an annual withdrawal of four per cent on a savings fund will allow the fund to last almost forever. All that is needed to allay fears of outliving savings is a minimum withdrawal rate of four per cent a year.
The minimum withdrawals were even more burdensome until Prime Minister Harper reduced them but he didn’t go far enough.
Ron Walter can be reached at ronjoy@sasktel.net
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
