In the second part of this retirement guide, I wrote about the million-dollar mark. Is it necessary to be a millionaire to retire? The answer is yes and no. In fact, it all depends on how our retirement income will be structured. If you rely 100% from your portfolio, chances are that you may need about a million dollar. However, if you have been able to create other sources of income over time, then, the iconic milestone is not a requirement anymore. Let’s explore your retirement options to show how you can shape your future income.
The Government won’t let you down, won’t it right?
Ah… the great promise of politicians to take care of you once you will be too old to work. Isn’t that attractive? Yes. Is it realistic? To a certain point. In fact, the “Old Age Security” pension (OAS) in Canada or the Social Security Benefits in the U.S. will always exist in different form. The argument is quite simple; it costs less money to pay a small pension to an aging population than dealing with the consequences of seeing all those people in the street.
However, thinking you will live the life on the Government pension is another story. I’ve looked at the OAS table since I’m Canadian, and my wife and I combined would receive $23,184… a little bit less than $2,000 per month. This is enough to pay for food, utilities and the basic stuff. Unfortunately, the Government will not pay for my retirement…
But I don’t care, I have a defined pension plan ?
If you are part of the lucky employees working for a city or a government, you probably are entitled to a defined pension plan. A defined pension plan put all the responsibility of the pension on the employer shoulders. This is what killed GM in 2008 by the way. I doubt many private companies still have them (besides Canadian banks…). Unfortunately, I have to burst your bubble. The thing is that most plans are underfunded at the moment even considering the incredible bull market we are running. What will happen? You can say that you have read it here: Upon the next economic crash, most Gov’t levels will renegotiate and modify their pension plan as they will claim they can’t afford them anymore. Don’t believe me, then answer this one. Imagine any city with a pension plan under the water. They have police officers, firefighters and all the administration to support. On the other side, how can they put more money in their pension plan? What are their revenue sources? Mostly taxes. Do you think cities will be able to raise taxes to a sufficient level to cover the actuarial deficit? Think again. Unless you are 50 and older, you are probably sitting on a ticking bomb if you have a defined pension plan. Don’t count on it too much… it will exist when you retire, but it will not be as generous as they promise you.
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