Personal Finance: Bid the '50s farewell

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The Independent Online
HAVING partied into the new year, it's time to make plans to sort yourself out in 1999. Before you stop reading, I am not going to bore on with the usual "new year, new you" tips like checking your life insurance or paying off your debts.

Worthy as these things are, we should go into 1999 with a much bigger project in mind. Everyone's New Year Resolution should be to accept that there has been a radical shift in the way we live and work, and plan accordingly.

The problem is that our financial lives are stuck in the 1950s. When a job was for life, and so was marriage. When mothers did not work outside the home. And when the state pension provided a real income, not an insulting one.

All of these things have changed, but we haven't factored the changes into our financial lives. And that's compounded by the second part of the problem - the economic world we inhabit has also changed. Traditionally, the British have relied on the safety of the building society and haven't taken to the stock market because it's volatile and dangerous. We still expect a state pension plus income generated from occupational pension schemes and perhaps government bonds to see us through retirement.

Our 1950s-style plans assume interest rates will remain relatively high. But they are low and pressure from Europe will make them fall further, with knock-on effects for people who rely on building society deposits. Worst hit will be anyone buying an annuity - a retirement income based on the interest payments from government bonds.

The idea of a company pension plan is already outdated: many workers join one, only to find they get nothing back if they leave within two years.

What can we do? Be flexible. If you can spare some cash, put it into the stock market and expect to leave it there for the long term. Be cautious about taking on high levels of mortgage debt and other personal loans. Don't join a pension scheme that penalises people who live in the real world.

But the biggest reality shift is the hardest. Many people in their thirties and forties will read this but believe they will be OK. There is an unspoken assumption we will inherit a large pile of cash and property from our parents.

Not any more. Older people now live long enough to spend all their savings in their own lifetime, and longevity is increasing. In the 21st century that will almost certainly mean your parents have to sell the family home to generate more income. Factor that into your financial plans.