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Why is it worth taking care of your retirement yourself
The aging of the population is particularly evident in more developed economies such as the United States or Western Europe (Germany, the Netherlands, France, Great Britain, etc.). In these areas, life expectancy has significantly increased and the number of children in the family has significantly decreased. The existing system of social security, pensions and healthcare is rapidly transforming to meet the challenges of the times. 100 years after the introduction by Otto von Bismarck of the pension security system based on the principle of solidarity between generations, it begins to pose a threat to its guarantor, i.e. the State. The reason for this phenomenon is the aging of the society.
In the historically established pattern of society, the number of young people has always been greater than that of the old, as the latter rarely reached old age. Thus, as part of the solidarity of generations, small parts of the income generated by a large number of younger members made up the retirement benefits of the statistically few old members of the community. The guarantor of this system was (in line with Bismarck's idea) - the State, servicing the set of the aforementioned part of income for retirement purposes and their distribution. Collecting these funds is nothing more than a kind of taxes and these funds were part of the state budget. If the amount of funds for pensions was sufficient and equal to the needs, everything ran smoothly. But when the number of elderly people increased dramatically and the number of young people decreased, the state as the guarantor of pensions with its budget became a hostage of pensions, the share of which in the state budget became more and more significant, unfortunately on the side of liabilities.
The increase in the standard of living and wealth not only results in economic growth and changes in consumption preferences, but also results in an increase in life expectancy, which is intuitively understandable and expected. There is a visible decrease in the number of children born. Which is incomprehensible, because in rich societies individuals that can feed the largest number of offspring constitute a greater number than in poor countries. But it is in poor countries that more children are born. The fertility rate in European countries, including Poland, which is one of the countries with the lowest "fertility" of women in the world (fr = 1.27) is so low that it does not even maintain a constant population of these countries (fr = 2.14 ) and causes a decrease in their population. Since there are no more children and people are living longer, there is a serious problem with financing the life of this part of the population who has passed the working age and lives on retirement benefits provided by the state. There is a need to finance retirement benefits from the state budget. These expenses constitute an increasing part of the state budget. EU countries will allocate from 8% to 16% (and even 24%) of GDP for this purpose. Despite such large expenses, the situation does not improve in the following years and an increasing part of the budget is consumed by retirees.
It is proposed to raise the retirement age and align the retirement age for men and women. It should be remembered that, on average, women live longer than men, and when they retire earlier, they are economically active for a shorter period of time. Attempts are being made to create and reform the pension system based on investing funds for future pensions in financial markets. The economically developed countries, led by the USA, are the leaders of such changes in the pension systems. In these countries, a conviction has arisen that people cannot rely only on the family and the state as guarantors of the future, but rather should turn to financial markets and related institutions in order to take care of their future by saving and investing themselves. Even in developing countries, there are signs of reforming pension systems. In response to the aging of the population, governments and financial conglomerates create new institutions, products that protect against the financial consequences of old age, diseases, medical treatment, protecting their clients against inflation and a change in the value of their assets. You can talk about development and progress in the financial markets.
Build your retirement when you are young
In the early stages of life, retirement seems obscure and distant. Plus, there's always plenty to buy and a whole lot of current expenses. Nevertheless, there are compelling reasons to think about retirement at a young age and to prepare for it earlier. Surely your expectations for the amount of income in retirement are greater than those of previous generations. It will cost more. Remember that you can count on a great ally. It is time.
Here is an example:
Suppose you save 1000 PLN at the beginning of each year and invest that money with an annual profitability of 7%. You do this every year from the age of 20 until the age of 30 (11). Then you don't add anything else, but you don't take any money out of that account either. When you retire at the age of 65, the state of your investment (the rate of return does not change) is PLN 168,514.
Your friend didn't start investing until he was 35. But at this age, following your example, he began to save the same amount as you and, like you, invested it once a year on the same terms. He did this until the age of 65, that is for 30 years. Although he has invested almost three times as much, his account balance at retirement will be PLN 147,913.
Start early with small amounts and you will see your savings grow. Even by saving a small sum, you can get a big payday. You can invest more aggressively when you are young. You have many years ahead of you to survive the inevitable ups and downs in the market. Good investing habit.
