DATA IS IN: IT’S UP TO YOU TO SAVE FOR RETIREMENT

As originally appeared in The Jerusalem Post on August 30th, 2019.

I don’t even think about a retirement program because I’m working for the Lord, for the Almighty. And even though the Lord’s pay isn’t very high, his retirement program is, you might say, out of this world. George Foreman

 For more than a decade I have been writing about the importance for individuals to take seriously the need to save for retirement. That reliance on the government to take care of you is foolish and that you will not be able to have a secure retirement if this is your approach. 

When I speak to people about retirement planning, I am often met with a common response. The response is,” I don’t need to plan for retirement because the government will save me.” I have to admit that when I hear this I cringe. The government doesn’t have the greatest track record when it comes to efficiently helping out its’ citizenry. I think it’s important for individuals to take care of there own retirement and not rely on anyone else to do it for them. I have always based my opinion based on financial planning meetings I have with clients, where the client has been working in Israel for 25 years and only has a pension of 9,000nis. 

Based on some new research it seems that I may be correct. Eytan Halon reported a few weeks ago in this very paper, on a study that tracked income levels of Israeli households after retirement. Dr. Aviad Tor-Sinai and Prof. Avia Spivak at Ben-Gurion University of the Negev’s Pensions, Insurance and Financial Literacy Center carried out the research which showed that Israeli’s are in much worse shape financially for retirement than our European neighbors. Halon writes, “Income after retirement among Israeli pensioners stands at 65.9% of their pre-retirement income. The dramatic decline by age 67, just two years after retirement, includes income from all sources: labor, pension plans, social security, and capital income. When compared to developed European countries conducting similar surveys, based on data provided by SHARE, Israeli retirees suffer a greater decline in income than their European neighbors. Austrian pensioners, for example, enjoy 91.2% of their pre-retirement income; French pensioners retain 83.1% of their previous income, and Germans continue to earn 76.8% of their income. Only Spanish retirees, the researchers said, earn an inferior proportion of 63.3% of their pre-retirement salary.”

It’s the culture

There are many reasons for this discrepancy, and the solution is not for the government to increase Bituach Leumi benefits substantially. It would be much more effective if there would actually be a culture of saving and investing. Why the government doesn’t allow children, with the help of their parents invest money is beyond me. One of the most frequent questions I receive is about teenagers who have worked and have money and what they can do with it, and all that is allowed is to put the money in a very low interest-paying bank deposit. Why not let them invest and 1- start building wealth and 2- at a young age help them understand the importance of saving and investing? 

I don’t want to go into all kinds of other solutions, but the inability of youngsters to be allowed to invest is a pet peeve of mine. 

What to do?

For those counting on Bituach Leumi, look out. I am not sounding the alarm bell but it’s important to know that after decades of mismanagement and skyrocketing deficits, there is a real possibility that the Government will not be able to meet their long-term obligations. (With older pensions called “Vatik” the government will guarantee the benefits, but these have been closed to new investments for years) The problem is that new pensions that are opened do not have a government guarantee on them. 

Take control of your own pension. You need to create a disciplined approach to saving. First of all, it’s important to sit down and do a budget. By doing this you can get a clear picture of how much money is coming in versus how much money is going out for expenses.  The next step is to speak with a professional financial advisor. They will be able to do a long-term financial plan for you and help determine how much needs to be saved, monthly/annually, at what rate of interest, in order to help you make up that shortfall.

If you can start investing at a young age, more power to you. If you invest $15,000 at the age of 25, an additional $2,000 a year with a return of 6.5%, at 65 you will have over $560,000.

Even if you are older you can still make up for lost ground. Starting immediately is of utmost importance.

The ball is in your court

Since no one else is worrying about your future, make sure you take control of your finances, so that you will have a financially secure retirement.   

The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates. 

Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.