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Pensions - Setting the course from the beginning of your professional career.
Wednesday 28 October 2015
Most employees will face a pension gap. Mrs Merkel is not the culprit. The failure lies in false assumptions. There is a good approach for young people starting their careers.
Financial independence in old age can only be achieved with a long-term strategy of habitual savings. Systematic saving is the foundation for future investments. The word "Saving" sounds a bit old-fashioned and is currently not a popular term for many people . But without the simple "spend less than you earn," nothing will help you to secure a decent pension.
How to best handle this issue? What should you suggest to young people? I remember a simple but effective easy way from my past a:
When I began my career at Dow Chemical in the eighties, we had the opportunity to invest 10% of our gross income in company shares. The beauty of this model was, that 10% of our gross salary was deducted each month from our pay check. The result was that these savings
never reached our pockets. It was as if our monthly salary was cut by 10%.
The automation of this savings model is the linchpin. The systematic reduction of consumption and spending patterns starting from the first job by 10% is a great start. With each increase in wages, savings will also increase at 10% of the gross salary.
Whether the employer deducts the monthly contributions or you organise this yourself via a standing order to the bank, it will ultimately achieve the same result. Whoever applies this savings model without interruption, month after month, in winter and summer, for decades on end, will one day marvel at the result. Without ever having suffered a reduction in lifestyle, the employee will have accumulated a considerable fortune.
Conclusion: At the beginning of all wise investments are savings. To find the path to a lifetime of systematic savings it is well worthwhile to start early. The "10% of the gross income" model is a painless introduction.