Planning to Retire on a Government pension? GOOD LUCK!


For all those Baby Boomers looking forward to retiring at age 65 (or earlier if you’re a government employee) there’s good news and there’s bad news:

The good news is that if you’re at the head end of the Baby Boom and planning on retiring within the next five years, then your dreams will pretty much come true.

The bad news is that if you’re a younger Baby Boomer your dreams of retirement could turn into a big disappointment. And depending on how much younger you are it could pretty well go downhill from there.

When government pensions were first introduced back in the 1930s the average life expectancy for men was in the neighborhood of 61. For women it was 65. So the bureaucrats who devised the government pension plans saw making pension payments to people over the age of 65 as a winning proposition. In fact, from the time the Social Security Administration was founded back in August of 1935 until Ida May Fuller received America’s first Social Security check in the amount of $22.54, nearly five years passed, during which the government had lots of time to amass enough funds to finance the scheme.

What the founders of Social Security did not count on was the dramatic increase in life expectancy, nor the demographics of a population that’s aging at an alarming rate. Today life expectancy for men is over 78 and for women it’s over 80. But these numbers do not take advances in medicine and our improving lifestyles into account, which could easily add two or three years to life expectancy. Initially the odds heavily favored the government, much in the same way the odds in Black Jack favor the house. Today’s longevity trend has taken the advantage away from the government and given it to retirees.

For a while this was sustainable. As new workers joined the labor force and contributed to Social Security the retirees drawing from the fund did not significantly deplete it because most passed away shortly after being pensioned. In 1940 there were 42 workers paying into the Social Security coffers for every retiree. By 1950 that figure had shrunk to 16. Ten years after that the figure was 5.1. In 2007 there were 3.3 workers for every retiree and by 2035 the ratio is expected to go to 2 per retiree.

In addition, most Western jurisdictions are suffering from a serious decline in birthrates. The birthrate in the United States is currently at 2.2 births per woman, enough to make for a stabile population. But birthrates in Canada are well below those of America’s, with 1.48 births per woman. In addition, the low birthrate is exacerbated by the large number of abortions Western women are having. In Canada it’s estimated there are 100,000 abortions per year; in the U.S it is reportedly 1.21 million*. While immigration tends to allay the problem of low birthrates, it doesn’t completely solve it, as many immigrants tend to hold low-paying jobs that contribute little to Social Security or rely on social assistance.

So it doesn’t take a mathematical genius to realize that government pensions are unsustainable by virtue of the fact that there will soon be vastly more pensioners relying on the system than anyone dreamed about back in 1935 when it was determined that the retirement age should be 65.

It’s only a matter of time before the official retirement age will have to be raised because governments are realizing that early retirement plus long life spans add up to bankrupt government pension plans. So the Baby Boomers who are currently in the late 40s and early 50s will not be able to retire at age 65, unless they provide for their own retirement through savings and investments. What’s more, they will be required to contribute substantially more in payroll contributions and will likely receive less in retirement benefits than their older cohorts.

Worse yet, is the fate of government employees whose rich pensions are rapidly bringing all levels of government to the brink of insolvency. All those teachers, police officers, firefighters and clerks whose unions secured ironclad platinum pensions will likely have to settle for considerably less than they are counting on because the funds to pay them will simply not be available.

But all is not lost. It’s still possible to plan for a successful retirement using wise financial strategies. The best possible outcome for Baby Boomers is that they take the wealth they stand to inherit from their parents and invest it well in order to have a relatively secure retirement. Those who think that the government will take care of them are in for a rude awakening as national governments are beginning to fight for their very survival because of unsustainable pension plans exacerbated by a demographic tidal wave.

*Courtesy of the Johnston Archive; last year reported: 2001

Written by Klaus Rohrich on July 12th, 2011

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