Thinking Ahead – Retirement Worries?

Posted By on February 12, 2017

For many of us, retirement probably feels a long way off – too far to think about today. Unfortunately we have memories of our Grandparents spending time with the Grand kids and travelling, and assume that we’ll retire the same way. Sorry to burst your bubble but that’s highly unlikely.

In 1938, Michael Joseph Savage, introduced the Social Security Bill into New Zealand Parliament, creating the first universal old age pension for people over 65 years old. The concept was, people would all have a portion of their taxes invested on their behalf, by the government to create a fund that would pay for their living expenses after they were no longer able to work. Those taxes came from people in jobs. That was almost 80 years ago.

Back in 1938, production relied predominantly on human labour. Today it relies more on mechanisation and technology, with computers and electronics. Just to give some comparison, if we took every computer in commercial use, today and looked at the number of employees that used to do that same function, you would find that each computer replaced 7 employees. Factor in technologies like the compact disc, digital camera and fuel injection and the resulting loss of whole industries, and that figure rises to an alarming: 1 computer costs 9.7 jobs. So since 1938, as a society, we have lost approximately 10% of our employment to technology.

In 1938, the population was different in terms of ages. The Great War had reduced the adult population that would have now been entering retirement. The Spanish epidemic flu had arrived just in time to catch a lift to the far corners of the planet, with returning soldiers and wiped out millions around the world. The elderly were the most vulnerable. The result was a population with fewer people reaching retirement age. In a young nation with demand expected to exceed supply for generations to come, a universal pension was easily attainable. Compounding this problem was the return of service people after the second world war, into a world of new technologies that gave us leisure time and new found wealth. The result was the baby boom, a huge surge worldwide in childbirths, creating a generation, a population surge, that would all reach retirement age within the same decade or two.

Back in 1938 the life expectancy of a person was less than today. Cancer and heart attacks were a death sentence. Today they are treatable, if not curable, treatments can prolong life for decades. The average life expectancy back then was around 65 for men and 67 years old for women. Today if someone dies at 67 years old we feel their life was cut short. Medicine has prevented many epidemics, which would have hit older people, with their reduced immunity, harder than the working populace.

Add all these factors together and we have fewer jobs, less people in the workforce and therefore less taxes to fund these pensions. On the other side of the retirement equation, we have a larger proportion of population ageing, compared to those employed and paying taxes, who will live longer. A vastly different scenario from 1938.

But wait, it gets worse!
Successive governments world wide have looked at those retirement funds and seen them as reserves for economic use, rather than investment. Those investment funds Michael Joseph Savage envisaged back in 1938 have been squandered by short sighted politicians ever since.

In an effort to halt this looming pension disaster, governments introduced national superannuation schemes. An amount, separate from taxes, was withdrawn from an employees pay and paired with a similar amount from the employer, then invested in a high interest investment account. At the time it seemed like the perfect solution but these investments were handled by private enterprise. By the time board members and shareholders took their cut, there wasn’t much left from the predicted profits. The profits were decimated by international events like the US Prime Market crash, the Global Financial Crisis and a host of other reversals.

The sad reality is, the retirement we envisage, based on what we saw our Grandparents have, will not be there unless we personally do something about it.

Today we live in an age where, as long as we invest in someone else’s scheme, whether government or private, there will be too many pigs dipping into the trough, for us to end up with enough to fund the lifestyle we expect. Pensions currently do not allow retirees to live in comfort unless they already have their homes fully paid off. They are supplements, no longer incomes.

If we want to retire in comfort, we need to take matters into our own hands and create our own investment schemes, without greedy fund board members, directors, CEOs and parasitic financial advisers, all dipping into the honey pot. It’s not as hard as it sounds. It’s actually quite fun, once you see your money start to grow. In the next article we’ll look at one simple method, that you can control.

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