Depending on the country you live in, an individual’s need to save for retirement can vary widely. For example, in Norway (where I currently reside) they have a very socialist economy and any resident will retire with a pretty substantial income for their entire lives. In Canada, my home country, we have the Canadian Pension Plan. This pension plan is not huge – in 2007 the average monthly benefit was $481.46. This has huge implications on how I run my family finances.[ad#tdg-embedded]
If I were to live in Norway, then saving for retirement would not need to take a huge chunk of my disposable income. The government is going to ensure that I can afford to live a comfortable existence, with perhaps even a bit left over. On the flip side, in Canada I cannot rely solely on the CPP benefit. $481.46 will not be enough for my wife and I to live on (at least not with what we have become accustomed too), especially with the type of retirement I want! As a result, I need to allocate a large portion of my income to my investment portfolio to ensure that I supplement that CPP benefit.
In essence, I am forced to invest my money for retirement. The government is making me do it. This is exactly as I want it! I do not want to start a debate about the pros and cons of socialist governments, or the associated taxes. However, that is really what we are talking about here. The Norway pension plan requires a large tax burden on its citizens. Canada’s does too, but not to the same extent. I do not want to rely on a government for my future well-being.
The point I am trying to make here (although not very eloquently), is that one of the factors that impacts an investor is the government in their home country. Depending on the pension plan you will receive, more or less of your disposable income must go towards saving for future income. In addition, government rules on the taxation of investment assets must be factored into many of your investment decisions.
In summary, I am suggesting that as individual investors you consider the impact of your local government on the investment decisions you are making. Investing is not complicated but many things must be given some think-time. The government is certainly one of them.