Retirement used to be a pretty straightforward equation.
If you’d been born a generation ago, for example, you likely would have worked for the same employer for most of your working life.
When you turned 65, you would’ve traded in your daily commute for a gold watch and an employer-sponsored pension plan, and gone off to enjoy your “golden years.” Just not too many of them, because the odds that you’d make it much past the age of 70 or 75 were slim to none, and Slim just left the building.
Now let’s fast forward to today. If you’re like most Canadians who are of working age today, you’ll probably have several different employers over the course of your career.
Some of those changes will be voluntary. Others could be because the industry you’re working in will disappear, a technological innovation or outsourcing will make your position redundant, or the company you work for will get bought out, re-organized and left with half the payroll it had before.
The chances that you will be able to look forward to the same kind of rock-solid defined benefit pension plan that your parents or grandparents enjoyed are also shrinking day by day. There are a few reasons for this, with the most significant being that defined benefit plans have become a good way for companies to go out of business.
Consider the facts. Retired employees used to be a financial “liability” for their former employers for at most five or 10 years. Not a bad deal for 30 or 35 years of loyal service.
Today’s employees have the temerity to live upwards of 30 or 40 years after they’ve officially retired. A company bold enough to fund 30 years of indexed pension income in an uncertain economic environment is either incredibly brave, or about to go the way of the dodo.
The harsh truth is that the retirement equation (like so many things in our lives) has changed, and it’s not going to change back anytime soon. We need to accept this, and find a way to get on with the rest of our financial lives.
A good place to start is by taking a fresh look at our conception of retirement. As a society, we have come to believe that retirement is a natural part of the circle of life. There is birth, retirement and death. Birth and death are a given, but retirement is a man-made creation, and a relatively recent one at that.
So exactly how did retirement worm its way into becoming an immutable part of the human experience?
The notion of retirement was born in Germany in 1889 – just over a century ago. The German Chancellor Otto Von Bismarck decided that people should simply stop working at a particular point in their lives. Not surprisingly, the idea proved popular, and it caught on pretty fast. But it’s important to remember that the entire history of the human race before Otto didn’t include retirement, at least not as we know it today.
Given the economic realities of the 21st century, maybe it’s time we re-evaluated our idea of retirement into something a little more up-to-date than what old Otto had in mind.
We may no longer be able to rely on til-death-do-us-part pension plans. But the upside of being longer-term “financial liabilities” to our employers is that we also tend to lead longer, healthier lives.
As a result, issues such as maintaining our health so we can meet the demands of longer working careers are going to become more important than ever. After all, if the finish line is going to keep backing farther away, then we need to make sure we stay healthy long enough to reach it.
This longer haul doesn’t necessarily have to be unpleasant. Most of my clients who retire in the conventional sense of the word find themselves going back to work after just a few months. We all have a natural instinct to be productive, and many people become restless in retirement and end up returning to some form of work – not because they have to, but because they want to.
They may no longer be the office whiz kid. But their biggest asset is the skills they acquired over a lifetime, and it seems a shame to abandon all that knowledge and experience just because some politician decided a hundred years ago that it should be so.
What if, instead of completely altering our lives at an arbitrary date, we tried partial retirement – like “retiring” from those parts of our careers we never much liked anyway, or from a schedule we just don’t have the energy to keep up with anymore?
In addition to allowing us to keep doing some of the things that drew us to choose our career path in the first place, this could also allow us to keep earning an income (and keep from drawing on our RRSPs and other savings) well past the conventional retirement age.
A realistic 21st century retirement plan needs to take the reality of our longer life spans and longer capacity for productivity into account. A plan that includes working part-time for 10 or 20 years after you hit 65 can completely change your financial landscape, with or without a 30-year indexed pension.
So when you start thinking about your retirement, try to set aside Otto’s notion of what the end of your working life should look like. Like everything else in the 21st century, retirement needs to become a more flexible, fluid and adaptable proposition
Alan MacDonald an Investment Advisor with Richardson GMP Limited, helps investors with over $500,000 of assets make smart decisions about money. Alan is the co-author of “The Copperjar System, Your Blueprint for Financial Fitness” available on Amazon.
All material by Alan MacDonald, Investment Advisor at Richardson GMP Limited. The opinions expressed in this article are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP or its affiliates.
Richardson GMP Limited, Member Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.