Imagine a simple world where we don’t have to worry about our future. We work our entire lives and the government simply sets a magical age for retirement. We get loads of pension money as our reward. While this is a novel idea, it doesn’t sit well with our leaders for many reasons.
This is a costly idea requiring taxes to fund it. More importantly it shifts the onus of responsibility from the individual to the government. The government is not our babysitter and no government will ever guarantee you a secure retirement. That responsibility will always fall on the individual.
That being said, the government does encourage you to save for retirement. It will even give you an incentive if you choose to save. So, how did these incentives come about?
In 1957 the Liberal Government proposed to introduce a general policy of allowing tax postponement. A limited amounts of earned income could be set aside for retirement by any taxpayer. Eventually, and under a different Prime Minister this concept would be adopted in Canada. This became known as the Registered Retirement Savings Plan (RRSP).
More recently the Tax Free Savings Account was created. The intent was to allow Canadians to shelter limited income from taxes. It’s critical to remember the key message. The government has created tax deferral plans (the RRSP) and tax shelters (the TFSA). Saving for retirement is and will always be YOUR responsibility.
Consequences of Not Saving
If you choose not to save for retirement and rely solely on government pension plans you’ll sacrifice your standard of living. The Canada Pension Plan (CPP) and Old Age Security (OAS) were never designed to provide enough income for a comfortable retirement.
Obviously starving and desperate senior citizens makes for a bad political image so these pensions exist to sustain the average retiree.
Unfortunately, the government simply can’t afford to offer any more than this basic amount. If you intend to do better in retirement the onus of responsibility falls squarely on your shoulders.
Give a Little: Get a Lot
That means sacrificing a little today to have a nest egg saved for retirement. The government registered plans are a good place to start (RRSP and TFSA) as well as maximizing available company pension plans. The first step, which is usually the hardest part, is to commit to saving some of your income for your future. You won’t have money for a future retirement if you don’t commit to setting money aside in the present.
In my E-books (“Water Barrel” and “The Balance”) I discuss simple methods to live sensibly for today, take charge of your financial affairs, and invest safely for the long term. For more information please visit David Penna Amazon.
As always, I am not a qualified financial advisor. I just relate financial management to my own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of mine came from expensive experiences.