Monday, July 29, 2013

The Pension Promise – Risky Business

Definition:
A pension is a promise of income at the end of one’s career. The pension was designed for people looking for security rather than freedom. It’s usually half to a third of the income you couldn't afford to live on while working.
Many believe that our pension is in a bank somewhere just waiting for us to retire when really that money is being invested in all sorts of government related activities.

Why it doesn’t work:
The idea is to have the generation that comes after us pay for our retirement. This will only work if:

1. The generation that precede it isn’t significantly larger than the one before it - The baby boomers are retiring and there’s currently not enough people working to pay for their retirement.

2. The population isn't paying their taxes – Only 47% of the population paid their property taxes last year in Detroit. The city had to file for bankruptcy and can no longer give pensions.

3. The retiree dies soon after he retires - Only a limited amount of people can retire at the same time. We’re only expected to live 2-5 years after we retire but since people tend to live longer the retirement age went from 65 to 70 in some provinces.

I believe that the Pension Promise is dying and we're about to hit a home base business revolution. It doesn't make sense to work for 40 years to end up with nothing.

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