Wednesday, November 25, 2009

The Truth about the Retirement Plan (Pension Scheme)

The things that are indoctrinated in us as we grow are more often than not accepted as truth in the society that we grow in. Consequently, we accept them as norm and never dare to challenge them. One of such things is the retirement plan (known as pension scheme in some countries).

Broadly speaking, the retirement plan or pension scheme is designed to provide people with some income when they are no longer employed and earning a regular income. It allows for the accumulation of a fund for later use as retirement income. Retirement plans could be setup by governments, employers or insurance companies.

I would not go into the intricacies of the retirement plan but I will like to respectfully point out that the retirement plan is a lie; it does not work.

Typically, the retirement plan represents 50% or less of a person's salary when he/she was employed. Based on this alone, we must not look very far to notice that the retirement plan doesn't work. Why doesn't it work?

Well, it is mathetically impossible to retire and live comfortably with 50% or less or your salary. Think about it. Imagine every month, while you work a job from 9 to 5pm, you take home 2000EUR (3,027.33 USD, as of now). This amount is barely enough to meet all your monthly expenses such as car payment, credit card payment, mortgage, school fees for your kids, vacation, just to name a few.

Considering the fact that life is difficult with 100% of your salary, how do you expect to live comfortably with 50% or less of your salary upon retirement? Despite the glaring truth that the retirement plan does not work, many people have been made to believe in it with devastating consequences. Many hardworking people worldwide retire and live a life of struggle simply because they accepted a lie as truth.

Another down side of the retirement plan is this: when the stock market plunges, the retirement plan assets also plunge. In the U.S. in 2008, assets held within retiremnt plans lost 22% of their value. At the same time, individual retirement plan assets declined by 24%. (For more details click here). That said, can you trust the retirement plan with the global economy the way it is?

Many of my readers are still very young and some of them would be wondering what the retirement has to do with them at this point. However, we all agree that it's better to be prepared than to be sorry. So, what do we do?

Financial experts, investors and successful businessmen like Robert Kiyosaki (author of Rich Dad, Poor Dad) have suggested that the best thing to do is what I've done - invest in assets or businesses that generate passive income, while we're young. For instance, you can buy houses and rent them out so that tenants will pay rents and guarantee you a steady stream of income. Better still, invest in a telecom company (bearing in mind that people will always make phone calls) and when your customers pay their bills (which they always do), you get a big chunk of passive income. How about that?

Well, what ever decision you make is up to you. I have done my part to inform you that the retirement plan is a lie; the retirement plan does not work!!

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