If you thought the last 10 years were rough on retirement savings, fasten your safety belt

RBC is reporting the obvious today – RRSP contributions to continue declining through 2020, says RBC Economics

The reasons were predicted in 1996 by Economist David Foot. The Baby Boomers who fueled the post war economic boom are going to earn less, spend less and stop saving.

Population Projections for Canada, Provinces and Territories 2005-2031 Statistics Canada

The chart above shows the trend under worst, average and best case scenarios – sometime between now and 2015 there will be more retired people and fewer working people.

That has all kinds of consequences but the one that faces each and every baby boomer is their own financial situation. All things being equal, we will need to withdraw our savings from investments like RRSP’s and IRAs. We will likely not be working or will be working at a lower pay scale and need the money to live.

We saved for a rainy day and here’s that rainy day.

If the stock market had performed as we were told it would with average annual earnings of 7% to 17% we might be in some kind of decent shape. The reality is that most people have had their savings wiped out by two stock market depressions in ten years.

Instead of gains, we had annual losses of .5% for ten years. Worst decade for stocks in history

If you were lucky enough to pull ahead in the past ten years with investments, you are be in the minority. Everyone knows someone, if not themselves, who has lost 30% to 60% of their retirement nest egg.

Will it be any better in the coming decade?

Stock markets go up on the expectation of profits in the future and on demand for stocks. Most economists are hoping we pull out of the recession. The recovery so far has been jobless which points to a recovery in the stock market based on the Bank of Canada and US Treasury increase in the money supply. When they stop pumping money into the system sometime this year, the market will likely go flat or decline.

Assuming we get a recovery, will the demand for stocks push prices higher? Since the last bear market of 2008/2009, consumer investors have stayed away from stocks in droves. They are investing in bonds and CIDs. Even bonds are risky since the better yields are corporate bonds.

The demand for stocks and bonds will decline as people spend their savings. Pulling money from the market will have the opposite effect of 30 years of RRSP savings when we pumped the market upwards. Without an increasing demand for stocks, the markets will shrink. As people redeem their mutual funds, the losses will accelerate. Mutual funds can and do face liquidity crisis when net redemption occur.

Banks, mutual fund companies and investment advisers are beating the drums trying to convince us to trust them with what we have saved. “Give me your money,” they say, “we will charge you fees and you can’t lose.” Most people can see through their self-serving promises. P.T. Barnum said their is a sucker born every minute.

David Foot predicted the stock market would go into a broad multi-decade decline around 2018. He is probably correct only the date might be sooner than he predicted.