The other day I was walking our lovely puppy in the nearby park. Dog owners stick together and talk to each other. You’d be surprised what you can learn in the park while throwing a slimy tennis ball around.
You don’t believe me? Well, I used to talk to a woman who told me that she’s had lovers all through her marriage. Thing is, I knew her husband as well and liked him a lot. Eventually she caught her and the whole thing ended up in custody battle for the dog.
Anyhow, this time there was nothing as dramatic as that. At my age people talk to me about their pains and aches; or if I’m lucky they bring in some excitement by discussing pensions and retirement. So, I was chatting to a lady who just happened to mention that she doesn’t have any pension.
Thinking about it, she wasn’t even upset or worried; she just dropped it very matter-of-fact in the conversation.
Just a minute, I thought. What’s happening here?
I started worrying about my pension almost immediately after I graduated. I remember standing outside the library (yes, we academics used to work in libraries back then) and telling a priest (don’t ask) that I should get a position soon if I am to have a pension later.
I worried about pension in my thirties as well; in my forties I made generating retirement income my priority.
At the same time, since my early thirties when I got an academic position in Britain I’ve been contributing to a very beneficial and generous pension scheme.
We are still focused on making sure we can have decent income in retirement. And this is why I believe you should make generating retirement income your priority as well.
- One day you won’t be able to work. It doesn’t matter that you are still young, strong and able to work. One day in the future you will either be unable to work or you wouldn’t wish to work any longer. Making sure you have what to live on when this time comes is a priority.
- You have to take responsibility for your retirement. There was a time, not so long ago, when people were expected to take care of their parents when they got old. This time is gone: in today’s industrial societies there is no such expectation.
- There are some nifty financial vehicles around. Concerns around aging population and insufficient pension funds in most countries (this excludes Finland where pension funds are still healthy) have led to the development of many financial schemes that include matched contribution from the employer, the state and/or tax relief. In the US there are defined contribution plans like IRA and 401(k); in the UK there are occupational pensions and individual or personal pensions (Self Invested Personal Pension or SIPP being the new kid on the block). In fact there are some really cool possibilities even for free lancers and contractors.
- Your children won’t be able to help. I belong to a generation of people who know that we’ll be better off financially than our children. The economy is changing, secure jobs with generous pension schemes are disappearing and free-lancing and working casual jobs is on the raise. Does it sound like your children will be able to help you when you are not able to make a living any longer?
- Social security and state pensions are going to disappear. Yes, the retirement income states used to provide is going down; so much so that it is not enough even for food at the moment. And you know what? If I were a gambler I’d put my pension fund on a bet that state provisions for retirement are going to disappear completely within ten to twenty years.
- Old age is expensive. You know, people somewhat mistakenly believe that they won’t need much in old age. From what I’ve seen and researched this is incorrect: old age is expensive, it is just that what people spend their money changes. Young people need money for going out, study and adventure. Old people need money for dental care, medical bills and old people’s home expenses. This stuff doesn’t come cheap.
A new report from Barclays says that people need about $30,000 per year in retirement to enjoy a comfortable life. I am not convinced: this may be true today but it certainly won’t be enough in fifteen years’ time. To get this annual retirement income you need to save a pension pot of close to $600,000.
How much is your pension pot at the moment?