There was a time not so long ago in the United States that many people had relatively stable financial lives. People tended to work for a single company for much of their careers. If they worked hard and did a good job, then they could expect a series of raises and promotions that would help them to improve their standard of living gradually over time. Because they tended to stick with an employer for the long haul, they tended to settle down in a community for longer periods of time, keeping houses longer and building more equity as they paid down their mortgages.
Many large employers encouraged this behavior and gave employees incentives to help retain them over the long term. These employers made an implicit bargain with employees: if you stay loyal to the company, then the company will reward you. In the 1950s and 1960s, big manufacturing companies like General Electric
Now don't misunderstand this description as a nostalgic look back through rose-colored glasses at the lost days of yore. There was a price that employees paid for what they got: complete dependence on their employer. When people wanted to switch jobs, they had to be extremely careful, lest they appear to be disloyal "job-hoppers" whom employers would consider unreliable. Having more than a few employers listed on a resume would be apt to cause problems or at least raise questions in interviews. Yet many people thrived in this environment.
The new rules: Don't count on help
With this as context, it's easy to understand why many older workers and retirees are struggling with the paradigm shift that corporate America has increasingly embraced over the past 25 years. Faced with global competition, increased costs, and uncertain prospects for the future, companies began to focus on cutting internal overhead and streamlining their operations. As the bull markets of the 1980s and 1990s show, investors were ecstatic at the resulting gains in bottom-line profits, yet many ordinary workers felt that they were missing out. In addition to outright layoffs and attempts to restructure organizational charts to consolidate or eliminate workers, companies often dramatically reduced benefits for current and former employees. The fear of bankruptcy and total default prodded many workers into accepting major concessions in the hopes of preserving their jobs. Employees responded by abandoning their loyalty and accepting the new state of affairs: a dog-eat-dog world in which frequent job and career changes are increasingly accepted as necessary and beneficial.
For younger workers, the prospects for getting the kind of financial help that was available to some of their parents and grandparents are grim. While people disagree about the magnitude of the challenges faced by Social Security and Medicare, most admit that these programs may need to make drastic changes in their benefits over the next 30 to 40 years in order to address the change in worker demographics in the United States. As more and more companies discontinue pension plans or convert them to defined contribution plans, in which employees bear primary responsibility for handling their own investments, workers realize that when the time comes for them to consider retirement, they will largely be on their own.
Responsibility isn't a bad thing
There's no excuse for companies that make promises to employees that they then choose not to keep. But for those of us who never got any promises from employers, there's nothing wrong with having to take care of everything ourselves. In fact, it can be empowering -- if you have a particular need or wish that requires a certain type of financial product, then you can get it, and if you don't, then you don't have to get it.
The problem, of course, is that wages don't always make up for lost benefits. Yet it is critically important to understand how to put a value on those benefits, so that if an employer offers a compensation package that looks better than it actually is, you can read between the lines and make an informed decision based on the whole situation. You should also realize that some benefits are worth different things to different people. For instance, for some people with serious health problems, the wages paid by a particular job are of trivial importance compared to whether health insurance benefits are available. Only by knowing your own needs can you determine what mix of salary and benefits is best for you.
Of course, assuming that you will have no outside help with your finances is a pessimistic assessment of the current state of affairs. It's highly unlikely that every single entitlement program in existence today will disappear entirely within 30 or 40 years, and the odds are therefore good that even today's young workers will have some supplemental assistance available to them. However, if you plan for the worst-case scenario, you will find that any additional help you receive improves your standard of living from the level you choose to something higher. Part of financial independence is not having to rely on income from outside sources that may be reduced or eliminated by events that are beyond your control. If you know you can make it on your own, then anything you receive on top of your own resources will be a pleasant surprise.
It's all up to you. But you can do it, and part of The Motley Fool's mission is to help you succeed in defining your own financial future. Our newsletter service, GreenLight, is a great way to get a jumpstart on your personal finances. To learn more, click here.
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