Are you worried about having no pension? Once upon a time, you worked for the same employer for decades. And they gave you a pension that provided a secure retirement.
How times have changed. Recent studies on retirement report that the number of private sector employees covered by pension plans has decreased from 88 percent in the early 1980s to around 33 percent today. Having no pension can make the long-term financial picture look much more precarious, especially as we age.
Unless, of course, you change the way you look at money. As we celebrate Labor Day, we need to acknowledge that the goalposts for achieving Financial Freedom have shifted. But nevertheless, Financial Freedom is very much within your reach.
What made pensions work so well?
For a good part of the 20th century, pensions offered a means of compromise between employer and employee. As a trade-off for putting time and energy into the company over a long period of time, an employee would get a defined contribution from their employer throughout retirement.
Employees had no responsibility for choosing their own investments, and the company controlled the entire portfolio. But this changed in the 1990s and early 2000s with not only the mishandling of pension funds by some employers, but also the introduction of various 401(k) plans. Retirement plans shifted the burden of financial risk from employer to employee. With 401(k)s, employees assumed the risk of selecting investments, thus limiting the company’s impact on their future retirement security.
Pensions, in many ways, made retirement planning easy for everyday workers. They required minimal initiative and significant reward, but kept employees locked into selling their time for money. Luckily, pensions aren’t the only way to support yourself for a lifetime.
A pension on your terms
You need a true Money MindShift to become Financially Free with no pension. The reason? Pension contributions were virtually automatic. Simply by putting in time at work, you would receive payments to your future self, heavily supported by your employer.
As pensions disappear, employees haven’t effectively handled the burden of saving for their own futures. In fact, one 2017 survey reported that more than half of all U.S. workers had less than $50,000 saved up for retirement. Surveys like this indicate that most people don’t know how to send their money to work for them.
By learning how to automate your finances, you can make up for the guaranteed contributions a pension may offer. Indeed, as pensions vanish, everyone should understand the meaning of Pay Yourself First.
Pay Yourself First means that each time you get paid, you send a predetermined amount of money to your Pay Yourself First account. At first you’re building a safety net that covers you in the case of a financial emergency. Once you’ve Protected Yourself, you can move on to investing for Cash Flow.
Paying Yourself First, and doing so automatically, does two things: removes the temptation to short-change your future self by living above your means and takes away the stress of manually managing your money.
The glory days of the pension are gone – but that’s okay
As useful as pensions were (and still are) for many people, relying on a corporation or government to support you isn’t enough. To live your best life, you can’t simply “put in your time” at a job and hope for a future reward.
How do you want to spend the limited time you have on earth? How can your money can help you regain control of your time? In the age of the pension, not many people thought about investments to generate a steady supply of passive income. Perhaps the guarantee of a pension prevented folks from seeing other possibilities.
Start generating Cash Flow by choosing a balanced portfolio that doesn’t invest too heavily in one sector or company. As a general rule of thumb, invest in companies that have little competition and fulfill a consumer need regardless of market conditions. But don’t jump the gun and start taking dividends immediately. Build up your investments, and reinvest those dividends until they exceed your monthly expenses by a safe margin.
Knowing how to invest for Cash Flow is crucial to your Financial Freedom. Pensions aren’t coming back, and not many people want to be tied to one company their entire lives anyway. Because Financial Freedom brings a whole new sense of fulfillment to the age of the vanishing pension.
The views and opinions expressed are those of the guest author and do not necessarily reflect the views and opinions of MindShift.money.
image credit: Bigstock/HalfPoint
Sam Bojarski is a freelance journalist whose work has appeared in national publications, as well as local newspapers and magazines in his hometown of Pittsburgh, PA. A dedicated news junkie, he’s always on the lookout for how current events shape the financial aspects of our lives.