With the crisis going on over in Europe, austerity measures going on around the world, and people having to prolong their retirement dreams due to decreased income and terrible market returns, I have been reading a lot of material that focuses on an increasing phenomenon known as “pension envy.” From what I’ve been able to gather, the envy is mostly direct at government employees (at least in Canada) who have guaranteed pensions waiting for them at fairly early ages relative to the average age of retirement in the private sector. While there may be some legitimate beefs with the salaries of government workers going forward, I have to say that this pension envy is seriously misplaced and that there is no reason for it in most cases. While everyone sees teachers, policeman, fireman, and civil retirements hitting the golf courses at 55, they don’t see the hundreds of dollars that automatically came off their paycheques every month in order to fund their pension plans. Personally, I automatically have about 6-7% of my wage taken off my net earnings, and then this amount is immediately matched by my employer (the provincial government). This money is then placed in the control of a 3rd party that handles the investments and distribution of our pension funds. Basically, my union just mandates the common sense that everyone should practice, but most don’t.
TM Says, “Only You Can Prevent Pension Envy”
The vast majority of companies out there today have some sort of “company match” up to a certain percentage when it comes to saving for retirement. Most of these are at the very least 3%, while some climb as high as 15-20%. This means that if you choose to put a certain percentage of your earnings into a retirement account, the company will match your contribution up to a certain overall percentage of your gross or net earnings. This is an absolutely fantastic deal, and should be the core focus of any pension plan if at all possible. I actually wish that as teachers, we had the ability to opt out of our automatic plan, and have self-control over our retirement funds (keeping the generous match of course). I just like having control over my own assets, and I believe I would avoid the common mistakes of either not saving enough, or taking out retirement funds in order to on a consumer binge. These mistakes stop people from realizing a lot of “easy” money.
I’m No Expert, But Seriously…
The company match should be one of your very first steps in your financial plan. It doesn’t even matter what you invest it in (well, it does, but that’s another story), by far the most important part is just making it a priority to max out the company match. If money is just a tool, then naturally you should use it where it will do you the most good right? This is usually where it will do you the most good, since your employer is giving you an automatic 100% Return On Investment (ROI)! There is an argument to be made for paying down credit card debt, and high interest consumer debt before contributing to a retirement, but I think any other priority is crazy. Contributing to this plan will give you WAY better long-term returns relative to saving for a down payment on a house, paying off students loans, buying real estate, or even purchasing gold (as opposed to what Glenn Beck might have you believe). I’m not knocking these types of asset classes, I’m just saying that a 100% ROI is unbelievable.
Better Safe Than Sorry
Don’t depend on a government pension going forward no matter what country you live in. Currently there are big time problems generating the necessary political will to address the huge financial problems that governments are facing around the world, and while there may be a strong probability there will be something left to help you out in retirement, I wouldn’t want to have to depend on that. Instead, make sure that your nest egg has been nicely growing (preferably using your employer’s money as well as your own) so that any government-supplied money will be a nice little bonus (hello winter in Panama).
The Juice Is Worth The Squeeze!
Instead of being envious of government people who are only guaranteed these nice pensions because their unions force them to be, take responsibility for your own financial affairs. You should immediately check if your employer offers a company match, and if you are close to maximizing their contribution. If your employer doesn’t offer this benefit, make sure you take this into consideration when comparing overall compensation packages with other potential employers within your sector. Use money as a tool, become a capitalist, and beat those pesky teachers to the golf course while laughing at their meagre retirement package!