Take your retirement plans into your own hands

Your Investments: Retiring early and living longer is the pension system’s recipe for disaster – and that is exactly what is happening.

By AARON KATSMAN
old lady 311 (photo credit: courtesy)
old lady 311
(photo credit: courtesy)
With governments all over the world strapped for cash, they are desperately seeking any way to both save and raise money. Soon-to-be retirees should watch out because an easy target for governments to succeed in saving money would be to raise the retirement age.
Not only would governments save money by not having to pay out pension benefits, but by raising the retirement age, workers will continue to add money to underfunded government pensions.
Underfunded pensions (retirement funds without enough money to pay future retirement benefits) could be another shock to the troubled financial system, though it could take another 10 years for the problem to hit. It’s important to note how times have changed.
In the late 1960s, men in Spain spent less than 10 years in retirement; now they spend more than 20, according to data compiled by the OECD and the Economist. In France, the time in retirement has risen from 10 years to almost 25. The jump in the United States is also large but not as drastic: from just under 10 years to roughly 18.
Retiring early and living longer is the pension system’s recipe for disaster – and that is exactly what is happening.
Forget about the government
I know that in today’s day and age, individual responsibility has become a dirty word: that we are supposed to rely on governments to do all of our bidding. But if your retirement plan is to think that the government will take care of it, you may be in for a rude awakening.
It is of utmost importance for each individual to do his or her maximum to put away enough money for retirement. If you get lucky and the government is there in 10 to 20 years to actually pay you your promised benefits, I would consider that as the cherry-on-top-of-the-whipped-cream-on-anice- cream-sundae.
In the meantime, for young people, government pensions seem like a losing proposition on a number of fronts. Humorist Dave Barry puts it best when he says: “I care about our young people, and I wish them great success, because they are our Hope for the Future, and some day, when my generation retires, they will have to pay us trillions of dollars in social security.”
Young people have to fund social security and fund the retirements of millions of baby boomers, but what will be left when they themselves retire?
Simon Read writes in the UK’s Independent: “Demographics. There will soon be more older people than younger people. Compared with today, the number of people over 65 will increase by 50 percent by 2030, and will double by 2060, according to the DWP. And every one of them will be due a payout from the state pension scheme.”
“The problem is that there won’t be enough money to pay out to them,” he continues. “The state pension is little more than a Ponzi scheme which relies on people paying in to raise the cash to make payouts to members. And like all Ponzi schemes, the UK’s state pension will implode when the number of people expecting payouts gets larger than the number of people paying in.”
What to do?
As I have mentioned in previous columns, it is vitally important to start saving money now. While it is widely believed that one has to be wealthy to start investing, all investors need to start somewhere. Therefore, the sooner a person begins, the better off he or she is likely to be. In fact, each year that a person forgoes investing will cost one to four years of retirement income.
This sense of urgency doesn’t only relate to investing. Rather, it is usually a good idea to make any sort of financial improvement immediately. This means paying off debts and making a budget. Keep in mind that you can grow your wealth by saving money as well. It’s not only about investing.
Take matters into your own hands and speak to a financial professional about creating a plan that will allow you to control your own retirement and not be dependent on the government.
aaron@lighthousecapital.co.il
Aaron Katsman is a licensed financial adviser in Israel and the United States who helps people with US investment accounts.