Once upon a time, employees devoted all their working life to one company. At age 65 they would get a gold watch (or a pen) and a pension that would last for the rest of their life. During those times, the life expectancy was 70 years old, so employers were not saddled with the pension burden for a long time.
In Canada, the government extorted 9.9% of people’s paycheck for 42 years and then when people turned 65, the government would pay pension benefits for about 5; remember, life expectancy was 70 years.
During that golden era, employees didn’t need to have any financial knowledge. They didn’t need to know the difference between stocks and bonds and they could care less whether the stock market was going up or down. They knew that their employer and the government would take care of them, and that is all they needed to know.
Mrs. S, a dear friend of mine, retired about 17 years ago. She spent most of her working years at the same company, Canadian National Railways. When she retired, she counted on the company’s pension and the government’s pension. She had some shares from her employer, some savings in her bank account and some investments in a private financial institution. Mrs. S never had to learn about the stock market to ensure that her savings would last. She doesn’t live in luxury but she is living a happy retirement life.
Times have changed since the retirement of Mrs. S. Nowadays corporations are doing everything within their power not to have full time employees. They don’t want to pay corporate and government pensions, unemployment insurance, health insurance and many other expenses that corporations are forced to pay when they hire a full time employee. Instead, corporations hire independent workers or part time employees, they outsource jobs overseas or they invest in machinery or software that replace employees all together.
When corporations hire full time employees, they contribute to the employees’ retirement plan, but it is the responsibility of the employee to decide how to invest those funds. If an employee invests everything in Nortel and Nortel blows-up, the employee is totally screwed. But how are employees, with no financial knowledge supposed to make those decisions? How are they supposed to choose among a myriad of stocks, bonds or mutual funds?
At one time in history, employees with no financial knowledge would deposit their money in a bank account and they would get some interest revenue. But the government has been keeping interest rates at almost zero and people have been forced to purchase higher risk assets, like stocks, to earn some kind of return for their money. The government is screwing the savers so that big corporations and the government itself can borrow money at low interest rates.
At one time in history people’s life expectancy was 70 years. Now life expectancy is about 80 years. If retirees have not made adjustments in their savings to fund 10 extra years of living, they can easily find themselves without resources to live.
Retirees are now responsible to make sure that they don’t outlive their money. After they reach the age of 65, instead of relaxing and enjoying their retirement, they have to continue learning and make sure that they will have enough money to carry them through a longer life expectancy.