1960 - 1990
FINANCIAL PLANNING WAS DONE BY THE CORPORATION - NOT THE EMPLOYEE. EMPLOYEES BUDGETED INCOME - EXPENSES.- THAT'S IT! THE EMPLOYEE TRADED HIS OR HER FINANCIAL TIME FOR A GUARANTEED LIFETIME AT RETIREMENT.
The first demographic group who were targeted were those in their mid 50's. Why? Because it is costly to fund a lifetime retirement with 10 years left (i.e. 55 - 65). This left those affected with only one choice - do it on your own. A $100,000 / year retirement income requires $2,000,000 in capital assuming a 5% rate of return on the capital - that's $200,000 / year in retirement funding. That sum speaks for itself. Most corporations did not start the retirement funding early.
Once a corporation removes a guaranteed pension for all intents and purposes an employee becomes self employed. The only advantage anyone has financially in a large institution is the opportunity to receive a pension and retire with peace of mind. Once you are on your own you are acting as an independent entrepreneur and not an employee. Loyalty cuts both ways.
That's the background that has resulted today in 60% of all working Canadians not having a defined benefit pension plan which would allow them to sleep soundly throughout the 30 - 40 years of their retirement (from as early as 55 to as late as 95 - look around you in your own family.)
Ask public servants why they work for the government from a financial point of view - their defined benefit pension.
Financial planning was done by the corporation - not the employee. Employees budgeted – income – expenses – that’s it. The employee traded his or her financial time for a guaranteed lifetime income at retirement.
Employees bought financial products for their individual accumulation purposes but had very little certainty whether they would be able to transition their accumulated savings capital into a sufficient and sustainable lifetime retirement income.
That brings us to 2011 where 14,000,000 boomers in Canada are preparing to retire and are inadequately aware of which professional financial practitioner can replace the corporate financial management team who once upon a time designed and implemented their defined benefit retirement plans......
That's where we are today.
1 comment:
From the early 1960's those who were employed in companies which offered Defined Benefit pension plans had no financial planning to do for their retirement. They had to simply earn as much money as they could and their employers pension plan would typically provide a lifetime pension based upon the average of their best five years of income.
30% of those now employed in companies have such a plan.
The balance of all employees with an employer's pension plan have a Defined Contribution Plan. There is no pension income guaranty.
There is simply a defied contribution arrangement generally for both the company and the employee.
These employees must become or hire their own financial planners.
It is major inhibitor for the 14,000,000 Boomers in Canada who are now at or preparing for retirement.
Dan Zwicker
Toronto.
Daniel H. Zwicker, Principal
B.Sc. (Hons.) P.Eng. CFP CLU CH.F.C. CFSB
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