The most important piece in the New York Times this weekend, at least from my perspective, is this one by Teresa Ghilarducci about Americans’ ridiculous approach to retirement. I don’t think Canadians are immune (switch out 401(k) for RRSP.)
“The current model for retirement savings, which forces individuals to figure out a plan for their retirement years, whether through a “guy” or by individual decision making, will always fall short. My friends are afraid, and they are not alone.”
As a female member of Gen X here’s what’s impacted on my retirement savings. Tell me what resonates with you:
1) I did not go into a high-earning degree programme but followed my dream. I have mixed feelings about this. At More we absolutely celebrate women who make midlife career changes because they want to love their jobs — and I love my job — and I really do think that’s important. At the same time, I sometimes wish I had at least given more serious thought to pursuing something technical and lucrative.
Then I graduated into a recession. I cobbled together part-time jobs for three years before landing a full-time position outside of my chosen field (but it really helped with the mortgage). Still trying to follow my dreams, I indeed did a few years later and took an almost $20,000 pay cut in order to move into my current field. I have almost achieved the salary I was receiving in 1998, but not quite.
2) Only one of my positions came with a defined benefits pension plan. In case you don’t know the difference — and you should — a defined benefits pension plan guarantees you a particular income when you retire, based on your contributions and seniority and all that. These are going the way of the dinosaur, and indeed, that benefit plan did bite the dust. (I will receive about $550 annually from that plan upon retirement. Coffee money!)
The vast majority of my savings are contained within an RRSP or a defined contribution plan, and my income will be based on how the investments do. In case you missed what that change means, it means that before, my company would have had to cover any shortfall between how the investments did and the plan in order to cut me a cheque every month. Now the company my investments are with will cut me a cheque depending on how they did. So now I personally own the risk.
3) While I benefit in my mortgage from low interest rates, I am supposedly in my prime investing years (although since I have young kids I’d say I’m “investing” in daycare right now – another choice, true, but not unusual for my generation). But rates are low, so either I have to take more risks with my money — and we all know how that worked out in 2008 — or barely cover the cost of inflation.
So yes, I’m a little worried. I can see what’s happening and plan, which is great. But the NYT article highlights the issue: Do-it-yourself retirement can be quite scary. At least for me. What are your thoughts?