I still save even though my employer has promised to pay me a pension when I retire. Despite this promise, I ensure that I do the following every two weeks: I siphon a solid chunk of my paycheque out of my checking account and I squirrel it away into my investment portfolio.
Why do I do this even though I’m one of the Fortunate Few who is still promised a pension?
I do it because I’m a person who likes to mitigate risks. I check both ways before crossing the street. I don’t text-and-drive. I use the hand-rail when going down the stairs. There is little, if any, upside to taking unnecessary risks with my future financial well-being!
No Need to Waste Money
I see no need to waste money or to buy stupid stuff just because my budget can accommodate it. I have everything I need and most of what I want. No one has ever convinced me that it’s a good idea to spend money just because I have it. If money’s not going to the basic necessities or to the little luxuries that make me happier, then I’d rather save that money and put it to work in my portfolio.
Money for Extras
There is absolutely nothing wrong with building a nice cash cushion so there’s money for the extras in retirement.
Once I’ve retired, I want to be D-O-N-E! I’m not one of those very lucky people who loves what they do for a living. I’m good at what I do. I’m competent at what I do. I’m efficient at what I do. However, if I wasn’t being paid to do this job, I’d be doing something else. I’ve heard of people who love their jobs so much that they would do them for free. I hope to meet one of these rare creatures someday…
Pensions Can Fail or Disappear
Having a healthy investment portfolio mitigates the financial impact on my life should this nightmare scenario come to pass. I don’t want to be in the position of these unfortunate employees of the company formerly known as Sears Canada. If for some reason I’m no longer receiving my pension, then I need to have some serious cash in place to continue paying for my life’s expenses. Those bills won’t disappear just because my pension has! I won’t take the risk of not having a little something set aside…just in case.
Retiring Earlier Than Originally Planned
Income from my portfolio relieves the pressure to work for a full 35 years in order to receive a penalty-free pension. How so? Well, my particular pension is reduced by 5% for each year that I retire before putting in atleast 30 years. This is lovingly-called the early retirement penalty. (Between years 30 and 35, there’s no penalty.)
If I decide to retire in year 27, then that’s a 15% reduction of my monthly pension payment. However, if my portfolio is paying me the same as or more than the amount of the decrease, then I don’t need to work for those extra 3 years. I will effectively receive a monthly payment amount that’s equivalent to a 30-year tenure. How? My pension payment – based on 27 years of service – plus my portfolio’s monthly dividend payment will be equivalent to a payment based on 30 years of service. Sweet!
Essentially, I’m buying myself the option of retiring early by ensuring that my investment portfolio grows alongside my pension.
Creating a Legacy…Maybe
If I can live off my pension amount, then my portfolio can continue to grow on its own. Strictly speaking, I won’t need to make any further contributions. (Though, knowing myself as I do, there’s a good chance that I will continue to live below my means until I’m pushing daisies.) Let’s say that nothing ever goes wrong with my pension and the monthly payment flows to me until the day I die. Hooray! And let’s say that it’s always enough for me to pay for all my needs and all my desires, no matter what they are. Hip, hip, hooray!
Odds are good that I’ll still contribute a little something to my investments when I retire. One of the things that I love best is investing in my portfolio.
If all goes well, my portfolio can stay intact and be a huge boost to the lives of my beneficiaries once I’m gone. Nothing wrong with that!
Long-Term Care Will Need to Be Funded
Sixthly, should I live long enough to need it, my portfolio will assist me to buy high-quality assisted living and/or end-of-life care once I can no longer live independently. The Baby Boomers are just now, ever-so-slowly starting to move into the realm of needing extended care. I have no doubt that the cost of that care is going to skyrocket before I need it. And I harbour no illusion that the government will have the problem of caring for large numbers of infirm elderly solved by the time I need that sort of care.
While the private system won’t be perfect, I’m confident that it will be expensive. I’m also quite certain that I will need money to ensure that I can buy the kind of care that I’ll want to receive.
So There You Have It…
Many in my life have told me that I should enjoy my money. I think they mean that I should spend my money in a way that they would like to spend my money. And that’s fine.
They can have their opinions and they can make their comments. At the end of the day, I’m sticking to my investment plan. I know that I want to have more options when I retire. I can no more predict the future than you can, but I take comfort knowing that I’m taking steps now to have a financially solid retirement.