You are financially vulnerable.
Don’t feel too bad. Most of us are.
A few weeks back, I watched an interview with Elizabeth White where she talks about faking normal. In short, Ms. White is very well-educated, had a network of contacts, worked for an international organization, took an entrepreneurial risk, got caught by the 2008 recession, and tumbled down the income ladder. She had significant savings and she “did everything right” but she still wound up financially vulnerable. She has since written a book documenting her experience and the experiences of many others who are in the same boat. It will be released in 2019.
After watching Ms. White’s interview, I took a hard look at my own life. I’m roughly 10 years younger than Ms. White, but I still have my employment and I’m one of the Fortunate Few who can expect to receive a pension when I retire…unless my pension is bankrupt and there won’t be any money to pay me when it’s my time to collect. (This is one of my personal financial nightmares.) So I’m doing what I think will save me from the possibility of my promised pension disappearing – I’m setting aside a large chunk of my paycheque into dividend paying investments. I let those dividends rollover each month, in the hope that my monthly dividend cheque will be enough to pay my retirement expenses if it has to. Check out how I’m doing this, if you’re interested. And while I’m saving, I’m working damn hard to stay out of debt. I’m also developing the habit of only spending money on the things that really matter to me: time with family and friends, travel, eating good food. Expenditures on anything else need to be justified because those things aren’t my priorities. It doesn’t mean that the expenditure isn’t eventually made. It simply means that there’d better be a good justification before my money leaves my wallet.
I feel like I’m doing okay, but I still question if I’ll continue to be okay if I lose my career in my 50s.
Ageism. It’s real and it’s pervasive. Sadly, it’s rarely on anyone’s radar until such time as they’re a victim of it. Those in their 20s and 30s are busy starting their careers, or simply finding jobs that allow them to pay for their necessities. The fortunate ones who have found employment most likely aren’t thinking about whether they will be turfed for having wrinkles when they hit their 50s and 60s. Those in their 40s are building families and careers, starting new businesses, or exploring the world. They too likely aren’t considering whether it’ll be easy for them to return to the world of paid employment should they need to.
Nope. For many who are trying to find work in their 50s and 60s, the reality doesn’t sink in until they cannot – for love or money – land a position no matter how hard they try. In the meantime, they still have to survive. There are still bills to be paid, mortgages to be serviced, and, most likely, children to raise or educate. As we all know, the expenses of life don’t stop just because someone has lost their job. Without an income, most people have little to no choice other than to dip into their savings while they’re receiving unemployment insurance payments. Once those payments stop, then there is no “choice” about it – savings must fund life’s expenses until another income is found.
And this is where the vulnerability is exposed. The vast majority of us do not have sufficient savings to survive for 30 or 40 years without an income. We have been conditioned to believe that we will always have and, if necessary, will always find another source of income that will be enough to keep us afloat. This hasn’t been true for a very long time, particularly not for those in their 50s and 60s. It’s a vicious and heart-breaking reality that employers are not financially incentivized to pay for talent, experience, and wisdom even though those very things are expected of employees before they are terminated.
Do I have the solution to this problem? No, I would never make such a boast.
However, I would strenuously encourage you to minimize your vulnerability while you can. I would suggest that you get out of debt as soon as possible and that you save as much of your income as you can while still enjoying the present. Figure out what your priorities are, spend your money on those, and ignore all other exhortations to spend your precious income on things that don’t matter to you. Whatever isn’t spent on your priorities should be set aside for long-term investing, paying off your debts, and building your emergency fund. It should not have escaped your notice that saving money should definitely be one of your most important priorities.
The more money your household makes, the easier it should for you to hit savings targets of 20%-50%. I harbour no illusion that lower income households are in a position to save great swaths of their income. Those of you with a healthy disposable income need to understand that there is no guarantee that you will always have employment that so richly lines your pocket. No one knows what tomorrow will bring. All you can do is look at the money you have today and figure out a way to not spend all of it. There’s no shame in saving some of today’s money for tomorrow’s needs.
If for some reason you lose your income in your 50s or 60s, your ability to survive until the next job – or until you can start collecting CPP – is going to depend on how much money you’ve committed to spend each month. Get out of debt. Have an investment portfolio that kicks off some dividends and capital gains, which are automatically re-invested until you need to rely on them. Establish a savings program that allows you to invest a good chunk of your income until you retire. Limit your spending to things that bring you a deep sense of joy and satisfaction. If it won’t make you happy, then don’t buy it.