How Retirement Is No Longer A Right, It’s A Luxury

When I talk to members of The Greatest Generation and similar (think Korean War), it only reinforces the schism that brutally confronts all the rest of us:  There’s no employer who is going to provide for us once we retire, worse, if we even get to retire.

Those generations were a blip in time: The social contract between an employee and employer post WW2 all but guaranteed that the employee, as long as they kept their nose clean, could trust that at the age of 55 (for public sector jobs), they could retire and start tapping their employer’s pension plan and retiree health benefits.

They didn’t have to learn about investments.  They didn’t have to learn about asset allocations, risk tolerance,  and asset classes.  They didn’t increase their contribution to their 401(k) by 1% every time they got a pay raise: Their pension plan was on the hook for adjusting the payout, not them.

While I don’t disparage the generous benefits bestowed by their employers, I also don’t enthusiastically embrace the concept of leaving one’s future in the hands of their employer.

Companies can declare bankruptcy and walk away from their commitment for their employees’ pension plan and retiree health benefits.

True, there’s a safety net in the form of PBGC (Pension Benefit Guaranty Corporation), but the payout is rarely $ for $ what the old plan was and does not provide inflation adjusted benefits (something that will hurt as more time goes by and pension benefit stays the same but costs go up).

If any good has come out of the last 2 decades of the Big Shift away from pension plans to 401(k)/403(b) plans, it’s this:  We now understand that we need to take responsibility for our future and not leave it up to our employer.

Whatever funds we put aside are ours and ours only.  They can’t be taken away no matter what happens to our employer (one caveat: make sure you limit the amount in your retirement accounts comprised of your employer’s stock).

The social contract between employer and employee post WW2 was a blip in time: We had never seen it before and we likely will never see it again.

But, if you prioritize your retirement planning (which is almost everyone’s number 1 priority) and contribute to the accounts available to your through your place of employment (401(k) but also HSA for some) and/or individually (IRA for all of us and SEP-IRA for self-employed), you have a good chance to be able to retire and to do so with peace of mind.

Who knows, with the right combination of lifestyle and investment choices you may even be able to retire early to pursue your bliss.

Compared to the choices available to the generations preceding WW2 (um, work until you drop), we are still doing ok, as long as we make informed choices, spend less than we earn, and seek wisdom in our relationship with our money.

 (Disclosure: I am a Fee-Only Financial Planner)