Traditional Employment and the Pension

I think that one of the most interesting facets of life is that we have little concept of history. We assume that something that was in existence when we were born has been around, unchanged, forever. The concept of retirement, for instance.

We spend most of our working lives accumulating a pile of money. We save a little each month and invest it for our retirement. The concept is in accordance with the first pension fund created by Bismark in Germany in the middle of the 19th century. Back then he set the retirement age of 65, even though he knew full well that the average lifespan was 48 years. In other words, very few people made it to retirement, and once they got there, they did not hang around for long.

Until 20 years ago most pensions were based on a percentage of final salary. However, it is unsustainable, and we have moved toward getting some return on our investment. (A defined contribution pension, rather than a defined benefit pension)

This is important because most of us don't understand much about money. We buy into optimism of the people selling us these investment products. And then we are pretty disappointed when we arrive at he end of our productive lives, only to find that we have a mere pittance.

Retirement investments are the opposite of insurance policies. With an insurance policy you pay a tiny amount each month confident tha if something happens you will receive a large amount. Retirement saving is building a large amount of money -- your lump sum -- and then giving it to insurance company confident that they will give you a little bit of money every month for the rest of your life.

Ultimatelty, all you want is a secure income stream for the the rest of your life.

It would ideal if your income stream was not at the mercy of the government of the day, or the economy of the day. (Your lifetime monthly payments, for example, are based on the lump sum you offer -- but far more importantly, on the interest rates on the day.) It's all very uncertain. Maybe that's why 95 out of every 100 people are terrified of retirement.