When you’re born into this world, you are taken care of by adults. Your parents or others senior to you take care of your well being and make sure you’re fed, dressed, and given the tools to grow.
Somewhere along the way, it’s implied that a person should be able to make their way without any ongoing direct assistance from above the chain. At some point, the child ideally grows into a fully functioning adult on their own.
However, in the world of personal finance, many people believe they should be taken care of. Whether by inheritance, lottery, or government/company pension plan, many people seem to have the notion that someone else should be responsible for paying their bills when they get older.
Now listen, we’re not saying that you shouldn’t get the pension you’ve been paying into for years and years at your job. It’s just that you should not rely solely on that pension and forego investing money as well to solidify your future financial position. You should also be aware that many seemingly rock-solid pensions have been crippled or gone bust over the years; underscoring our philosophy of not relying too heavily on a pension plan. Nothing is certain but death and taxes, right?
Consider two scenarios:
- a) John is entitled to a quality defined benefit pension when he retires in nine years. While this pension has done well over the years and he knows many people retired comfortably on it, John is a skeptic and instead invests 15% of his take-home pay in addition to contribution to his pension. He has always invested this amount over his career. John is conservative and wants to be sure he’ll retire well.
- b) Mark is entitled to the same pension plan as John. Since he feels strongly that his pension plan will be there for him, he doesn’t invest a penny outside of his pension contribution. Mark sees that others have done well with this pension and doesn’t worry one way or the other.
In the above examples, John will be insulated whether his pension comes through or not. Additionally, if the pension plan does work out, John will be extra-comfortable in his retirement. Mark will certainly be crippled if his pension plan is reduced or eliminated and needs everything to go through just as planned over the course of many decades to do okay.
Simple question: Would you rather be John or Mark?
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You Are Responsible For You
So let’s get this out of the way right off the bat: You are responsible for your financial freedom. You, and only you, can care about your well-being as much as it needs to be cared for. As such, the onus is on you alone to make sure you are making the necessary steps along the way to enjoy your later years.
Will that take some sacrifice today? Maybe. It really depends on your definition of sacrifice.
Saving to Get Rich and foregoing some income today shouldn’t be seen as a real sacrifice. It’s not like the money is going down the drain. It’s still your money… it’s just that it’s not for you now, it’s for you later.
It Doesn’t Matter How Much You Make
Over years of talking to people who have seen their company pensions reduced as a result of poor business performance, the economy, or [insert whatever reason you like], we’ve seen far too many people who relied primarily on their pension for retirement income. Just as it is a mistake to rely on one income stream while you’re working, the responsible investor should also plan to have multiple streams of income in their golden years.
Any way you slice it, and no matter how much money you currently make, you have a responsibility to your future self to put some money away in the present. Unless you’re planning to work until you’re dead without allowing for any speed bumps along the way, the reality is that you’ll need to invest at some point to get to your goals.
The easiest way to put money away is to simply take a cut off of every piece of income you receive. Whether you get paid $100, $1,000, or $10,000 for a good or service you’ve provided, you multiply in a percentage and put away the corresponding amount. Rather than focusing on whether you’re “investing enough” or not, just be sure to stick to that percentage based approach. On the above amounts, you would invest $10, $100, and $1,000, respectively.
Our Overarching Goal
Our entire purpose for maintaining this website is to spread awareness of personal finance issues and to collectively improve the lives of our readers. Paramount to improving one’s life involves taking an approach of accountability in every area. It involves owning your successes and challenges both while finding a way to win. Personal finance is just that; personal. Don’t defer one of the most important aspects of your life to anyone else. Be responsible.
With regards,
– The Get Rich Brothers
What have you done to take greater control over your personal finances? Do you feel people rely too heavily on pensions or other outside sources?
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Hi Ryan,
Almost everyone I know will just be depending on their pensions once they grow older. However, it’s something that scares the sh*t out of me. I don’t like to put my life in the hands of my gov’t. I don’t know if I’m just being paranoid or what but I feel that it should be my responsibility to ensure that I have sufficient financial resoures when the time comes.
Cheers,
Alex
The Thrifty Hustler recently posted…How to Earn Money from Selling Thrifted Items
The way I feel about government pensions is that it’s nice if they are still around when I get there, but I’m not willing to stake my financial freedom on them. Each of us are ultimately responsible for our own destiny, and that includes how we’ll financially afford life as we grow older. Some worry about it, I find that an encouraging and motivating factor.
Ryan
I feel that a lot of people may wait until the pension fund has actually failed before helping themselves. People have a sense of entitlement much like you said. If the can’t retire on their pension it’s not their fault it’s the company’s.
Thanks for stopping in, Andrew!
Too many people approach their retirement/financial freedom passively. Rather than arriving at their target date and finding out suddenly that life won’t be what they hoped, they should take a stand much earlier and actively play a role in ensuring a positive future for themselves.
You make a good point as well that many take some solace from blaming the company or the pension plan rather than doing what they need to before arriving in such a situation.
– Ryan