I grew up in a small town outside of Flint, Michigan called Swartz Creek. Many of the people in our community worked for one of the “Big Three” automakers, including my uncle, all three of my best friends’ dads, and many of my extended family. These companies were a classic example of a typical 20th-century employer. Right out of high school you could get a good job and make a very good living. It was certainly not easy work, but if you stuck with it for 30 years you would be well taken care of with an opportunity for early retirement, a good pension, and excellent health care benefits. Today, things are very different.
My brother-in-law, a veteran who did two tours in Iraq, is a temporary worker at a Big Three automaker. He has been a “temp” for several years now and has been told many times that permanent employment is just around the corner, yet that opportunity still has not come. He is reliable, hard-working, and goes the extra mile to work overtime whenever he is asked. He has “ok” health care when he is working but is not covered when he is laid off (which is pretty common and can happen at any time). He has no pension and no chance of getting one even if he gets hired as a permanent employee.
This is not an indictment on his employer. They are a good company, but like most 20th-century employers, they have simply changed with the times. The fact is things have changed and we, working-class America, must be able to financially protect ourselves and our loved ones by changing with it. The good old days of high-paying jobs with little training, pensions, and retirement healthcare are all but over. You can no longer count on your employer to take care of your retirement or your financial health for that matter. That is our responsibility now!
First and foremost, I recommend investing in yourself. As a society, we are now wise enough to understand that not everyone is made for college. But don’t be fooled; investing in your education is now more important than ever. Technology and automation will continue to take good jobs from hard-working Americans. Therefore, adapting to the times is a requirement in the 21st century. Think about something you enjoy doing and are good at and consider taking a course. Consider areas that are not easily automated. Great examples are sales skills, leadership training, computer and IT courses, trade school, and many more.
Second, there is a need for disciplined savings. Once upon a time, you could live on close to every dollar you made because Social Security and a healthy pension would take care of you during retirement. That is not the case anymore! We can no longer live on all of our income. In order to have a decent retirement, we need to save 10-15% of our income right off the top. At the very least, it is paramount to take advantage of employer matches in your 401k and other retirement plans. Be mindful of taxes and make sure you are taking advantage of Tax-Free investments as well like ROTH 401k’s and Roth IRA’s. This will ensure tax efficiency when you go to retire and helps reduce the implications of taxes on your retirement income.
To illustrate my point, take a look at this graph showing Fortune 500 companies offering Defined Benefit Pension Plans (the traditional get a check every month until you die) vs. Account-Based Plans (401k, 403b, etc.). As you will see, the offering of Traditional DB Plans has decreased significantly since 1998. At the same time, the availability of Account-Based Plans, like 401ks, has increased significantly. This is a very clear and distinct shift in who is responsible for your retirement. With the old pension-style plans, the vast majority of the liability for your retirement was covered by your employer. With “Account-based” 401k-type plans, the majority of the responsibility is shifted to the employee. You are now responsible for funding and managing your retirement accounts.
Source: Willis Towers Watson
If there is one takeaway you get from reading this article, I hope it’s that you are more responsible today than ever before for your own retirement and financial well-being. With longer life expectancy and higher financial demands on the government and employers, they no longer have the ability to take care of your retirement the way they once did. Recognizing the fact that you are now responsible for your own retirement is the first and most important step. The second step is understanding and managing the vast aspects that come with planning for retirement. If you become overwhelmed, as most people eventually do, the solution is a good financial advisor. A good financial advisor is as much a life coach as they are a money person. They can help you navigate the many challenges you will face preparing for retirement and other goals. I hope this information empowers and inspires you to begin planning for your financial future. If you don’t do it, who will?
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written by Brandon Carter