Or... financing your retirement with a 'not-pension'
There are many myths around pensions:
- You work until you are 65 and then claim a pension. Why 65? What business is it or anyone elses what age you want to stop working?
- Having a pension is a 'good thing' (like a dental plan, or eating your greens). This was true for the last generation...where lots of people of working age helped ensure there were plenty of taxes & economic growth to finance a much smaller pool of old people. This isn't true anymore.
- You can rely on the government to support you. Once again this MIGHT have been true in the past when there was a small pool of older people to care for, it ain't true any longer.
First the bad news: We aren't saving enough to live on in our old age. There are many reasons for this, certainly in the UK one of the big reasons has been successive government meddling with pensions rules. We are in the absurd position now where we are being advised by finacial advisors NOT to put into a pension unless we are higher-rate tax-payer , but there is a MASSIVE shortfall in pension contributions.
This is all unspeakably dull, so lets skip to the good stuff!
Now the good news: It doesn't have to be like ths :-)
My take on it is this.... forget the word 'pension'...it just gets you fixated on expensive products peddled by the self-serving investment industry. Cutting it right back to basics, we need a PASSIVE INCOME we can rely on when we are too old to work...that's it! So, forgetting products, taxes, inflation, media scare stories & all that... we just need to work out the best way of gaining that passive income. Some options:
- Save a massive amount of cash & simply take a set amount every year to live on...& hope you die before it runs out. (putting some figures to this, you retire at 65...reckon you're good for twenty years & you want $20,000 a year. 20 X 20,000 = you need $400,000 stashed away
- Save an even more massive amount of cash & try & live on the interest (good luck with that one)
- Rely on your children to support you! (good luck again!)
- Invest in an income-producing asset (be it rental property, shares in a business or whatever). This is a MUCH more reasonable proposition...especially if you have a few decades to gradually buy these income-producing assets.
- Pick a job with a nice fat pension scheme. (not a bad option, but I can't imagine spending 40 years of my life doing something I didn't want to simply for the pension at the end...there's alot more to life!)
It seems to me that number 4 is the most sensible way. In the second part of this article I will explore this idea in more detail.