Question: What is the difference between a government pension plan and a Ponzi scheme?
Answer: If the government does it, it’s legal.
Every time you get a paycheck, you will see a deduction for the Canada Pension Plan or the Quebec Pension Plan. This money is taken away from you (and from your employer), not for your own pension, but to pay for the pension of someone else who is retired right now. When you turn 65, some younger person (and some other employer) will be working to pay for your retirement.
Here is the definition of a Ponzi Scheme according to Wikipedia: an investment operation that pays returns to its investors from existing capital or new capital paid by new investors, rather than from profit earned by the individual or organization running the operation. Contemporary examples of a Ponzi Schemes is Bernard Madoff in New York.
The only difference between a Ponzi scheme and a government pension plan is that if the government does it, it’s legal. Other examples in which there is one set of laws for the government and another set of laws for the rest of us are the lottery and selling alcohol in Quebec.
Here are some reasons to create your own retirement plan
- The government pension plan is about to collapse. Canada’s fertility rate is 1.40 and in the U.S. is 1.64. That means that the population is decreasing. Falling birth rates mean there will be fewer workers to support more retirees.
- In the 50s people started working at age 18 and retired at age 65, the government extorted money from them for 47 years. At that time life expectancy was 70 years, so the government only paid pensions for 5 years. That was a sweet business deal for the government. Nowadays, with people getting late into the job market and with an increased life expectancy, governments are extorting money for a shorter amount of time and have to pay pension for 10 extra years (from 70 to 80).
- The national debt is increasingly putting the country at risk of not meeting all of its financial obligations.
- Companies are eliminating pension plans and are doing everything in their power to reduce the number of full-time employees. They don’t want to bear the cost of guaranteeing employees’ pensions.
Individuals are spending freely and saving almost nothing. Canadians are saving only four percent of their disposable income. That is a pitiful amount.
This is a wake-up call. If you don’t want to spend retirement greeting people at Walmart, flipping burgers at McDonalds, or begging on the streets, you should set in place a retirement plan and start saving now.