It used to be common for a Canadian to enter into the workforce and stay with the same company until retirement. Such stable jobs – whether in the private or public sector – offered more than just a reliable paycheck. They also promised the benefit of a guaranteed retirement income, in part from the company-funded pension plan.
In our current economic climate, just finding a stable job can be hard enough. So, what can you do if an employer doesn’t have a company-funded pension plan?
“Who’s taking care of you in retirement?” asks Darren Devine, President of Devine and Associates Financial Services Inc. “I try to convey this to people, especially young people. Pensions are becoming rarer and rarer. If you don’t have company retirement plan, you better step up and do it yourself.”
Devine says that today’s retired baby boom pensioners were lucky. They had a system designed to generate savings and help protect them in retirement.
“Pensions were put on a pedestal,” Devine says. “They had a 100% success rate for employees because they weren’t given an option. Money was taken off your paycheque every time you got paid. Why are pensioners today better off than everyone else? Because pensions forced them to save.”
According to Devine, today’s young workforce is most at risk of having inadequate retirement income. Part of the reason is the perception that retirement is so far in the future.
“I don’t have to talk to 55-year-olds, because they’re in the habit of contributing every year,” says Devine. “It’s young people saying, ‘why would I put my money in an RRSP?’ It doesn’t bring them that instant gratification. If I say ‘I can turn you into a millionaire in about 40 years,’ the excitement meter goes down. If I say ‘I can make you rich in 15 minutes,’ they’d listen. At some point, people need to understand it’s their responsibility to act, if your employer isn’t going to act for you.”
Motivated and self-directed individuals can start investing in their own retirement. Devine says a good template to follow is in David Chilton’s book on financial planning, The Wealthy Barber.
“Saving 10% of your net paycheque for 30 years will get you to what most would call a comfortable retirement,” suggests Devine. “This will fund 60% to 65% of your income for the rest of your life. The only thing missing here is the employer’s contribution. What I say to young people is, ‘we can synthesize what a pension would do. We can determine your risk tolerance and set your goals.’ This helps build out a model based on your own personal situation.”