Do We REALLY Need to Save for Retirement or Is It All Just a Big Hoax?
When I was 10 years old, I had two visions of what my future would look like. On one hand, I was going to own my own business. On the other hand, I was going to retire by the age of 45.
These two visions weren't mutually exclusive, as they can both happen, together. But the reality is, I had a false understanding of what it meant to be "retired" and why I wanted it in the first place.
Retirement is VERY highly marketed in our society these days. From what I can tell, it's been this way for at least the last 40 or 50 years. It seems my great grandparent's generation was the among the first in our modern society to reach the point in life where they could live off of pensions, either from the government (thanks to the implementation of social security) or from employers, for the rest of their lives. My grandparent's generation then followed suit and lived out their elderly years on pensions as well.
My grandparent's generation taught my parent's generation to follow suit and go to work for the government or an employer so they too could reach "retirement" and get those pensions. My parent's generation then cooperated and did what they were told. Today, I believe many of them are starting to realize that it may not have been worth sacrificing 40 plus years for the possibility of this (in many cases) make-believe "retirement" dream.
As an example, my own father, along with many other people I have known throughout the years, cooperated and did what he was "supposed" to do. He worked the corporate gig (and was promised a big pension) for 20 plus years, only to not live to see retirement. My mom once told me that he always wanted to be a sports announcer. Sadly, that could have happened, but didn't. I wonder if he chose not to go for it because of this pressure to do what others said to do.
Even while so many people never make it there, this idea of "retirement" (reaching a point where you can kick back and play golf all day while collecting your retirement pension) continues to be heavily marketed to us (even to my generation) as something we MUST cooperate with. There is this idea out there that we must play this game of working for an employer or for the government for 40 years at 40 hours per week and then we will be rewarded with a pension (or a 401k/Roth IRA income stream).
One big question that we too often don't think to ask is: Is this hope of one day having a retirement pension really worth living the life others tell us to live for 40 plus years?
I'm here to propose that that whole plan (to do things their way in order to reach this outcome in 40 years) just may be one big hoax.
Back in the days, the pensions were actually there. For our generation, they likely won't be there.
So the question is: Should we continue going the traditional route that everyone tells us to go and hope that we'll get to "retirement" in 40 years?
Well, for one, many people who do cooperate with "the plan" for 40 years, don't even live long enough to collect their pensions and reach this dream "retirement". Others make it there but then end up unhappy in retirement due to bad health.
Too many people sacrifice their prime years in order to POSSIBLY get the payback of this dream "retirement" in their old age.
So the big question is: Is it worth sacrificing our prime years in order to POSSIBLY get a payback when we're at the end of our lives?
Of course, we need to consider the alternatives in order to answer that question.
Here are the alternatives:
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Not looking at employment as the only option we have to make a living. Before the industrial revolution, a large percentage of people worked for themselves. Employment is not the only way to earn a living.
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Investing in assets (non-locked up, non-restricted assets) throughout our prime earning years.
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Creating work we enjoy and even love so that we can work later into our lives and not have to worry about retiring. Let's create more flexible work that we can do from anywhere and on our own time.
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Not spending all our money on 4,000 square foot houses with white picket fences.
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Not leasing (or buying) brand new cars that lose thousands of dollars per year.
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Not blindly going into debt tens of thousands of dollars per year to attend college to get a job we don't even want.
The reality is that many of us won't make it to "retirement" because we will die before we get there.
Also, many of us who do live to get there, won't have enough money to retire, even though we've saved for it diligently.
Many of us who do have enough money to retire, once we get there, won't, because we couldn't imagine not working anymore.
And many of us who do have enough money to retire (and actually want to retire) will be in terrible health by that time and therefore won't even be able to enjoy it.
That leaves a very select few who will actually experience this "make believe retirement" that is SO HEAVILY marketed to us these days.
My question to you is, which group are you going to fall into? Odds are you will fall into one of the groups where it did not pay off to sacrifice your peak years for those old age years.
Are you going to wait 40 years to find out? Or are you going to put in place an action plan now to find and do work you love so that you may or may not ever "retire".
"Retirement" to me, sounds like a bill of goods that's being sold to us. It may have paid out back when pensions were there, but when we get old, they likely won't be there.
Even if they are there, do we want to save our best days for when we're too old to enjoy them? Or do we want to take life by the horns and enjoy it NOW?
By enjoying it now, I mean finding work you love, never settling and investing in assets and building businesses that earn income and will continue to earn income even into our late years so that we'll never have to worry about "retirement" again.
That's my plan. What's yours?
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9 Comments
- Clay says:October 8, 2014 at 8:20 PM
I'm not so sure that pensions are a thing anymore, but interesting thoughts on the 401K. What I've noticed is that most folks simply don't even take advantage of those. Frankly, if a person is happy doing their 40 years working for someone else, that is fine. But the important part is to not expect for someone else to take care of them once they are done putting in the 40 years. There are far too many people in my age group (20s) who put the company match % for their 401k and nothing more. This figure is generally around 3~6% of annual salary - not nearly enough to fully retire after 40 years. I'm right there with you when it comes to investing in assets that grow. My plan is rather simple: Increase income, keep expenses low, invest, and reinvest.
- Kraig @ Young Cheap Living says:October 8, 2014 at 8:37 PM
Clay, Good plan, my friend. All great things to do to set yourself up VERY WELL! Take care,
- EarlyRetirementGuy says:October 9, 2014 at 7:06 AM
Kraig - Great post and raises an interesting point about whether we should be effectively putting our lives on hold in order to fund an early retirement. I was just in the process of writing a new post about this very topic! My thoughts are that instead of seeking to minimise absolutely everything in life to save.. each of us should find a level they are comfortable with that still allows a high saving percentage. All the early retirement safe withdrawal rate and years to retirement calculations assume that your expenditure remains constant once retired and so there's no point living an unhappy life while saving as this will then just continue afterwards. Personally I really enjoy the challenge of frugality. I like the competition with myself and others attempting a similar thing and so am just as happy living on 40% of my income as I would be living off of 95% of it. Im sure I could cut back my expenses even more if I wanted to, but as you point out: Why be miserable during your best years?
- marvin mcdude says:October 9, 2014 at 8:07 PM
Awesome post, Kraig. I think most people would agree that the years of our life from, say, 20-40, are usually worth more than say the years 80-90 (the diaper years??)... Unfortunately, there's no objective way to quantify this in a model... Kraig, I think your post recognizes this. By the way, I was moved by the story you told about your father. What a great tribute your own life is to never being afraid to reach for your dreams.
- Dividend Mantra says:October 9, 2014 at 11:17 PM
Kraig, Interesting article. I think it really depends on your definition of retirement and your overall timeline. If you're looking to retire by 65 whereby you live off of a pension and/or SS, then perhaps some of what you're saying is true. Though with the average life expectancy near all-time highs, even someone retiring at 65 has approximately 13 years to live, on average. Of course, it's hard to say how healthy you may be in those years. Which brings me to early retirement. I think retirement/financial independence where you're free to work or not work is an excellent concept, but I think the model where you work at one jobby job for 40 years and collect a gold watch and a check are long gone. Living below your means, saving the difference, and garnering that same freedom, oh, 25 years or so earlier ensures that you'll have a lot longer to actually enjoy your time. If you can find something you love to do or build a business you enjoy then that's great. But for the majority who don't necessarily love what they do or have the necessary skills/inclination to build a business then it's really quite easy to garner your freedom pretty early in life anyhow. Our first world economy gives you a lot of flexibility. As such, it's quite amazing more people aren't FI at an early age. Best regards!
- Steve@ChattingFinance says:October 10, 2014 at 9:34 AM
Hi Kraig, Big fan of your website. This is my first time commenting. I'll start off by saying I don't necessarily believe in "retirement". When I Google the definition for retirement, the result I get is "the action or fact of leaving one's job and ceasing to work." I definitely don't plan to cease working. Sometimes when I take a long vacation I get bored by the end. There is a part of me that likes achieving something through work. I don't just want to lay around all day and get a tan. My goal/plan is financial independence. Basically I want to be able to work a job a love, without relying on it for income. Hopefully my assets will create enough cash flow to cover my monthly expenses. Right now I'm 25. I think when I'm around 35-40 I would love to coach/teach basketball full-time. That could be as simple as running an after school program to help keep kids off the streets or coaching a team full-time. I don't think either option I mention above pays that well, but I could really see myself doing it. It's my goal, and I plan to work towards that.
- Wade says:October 17, 2014 at 9:22 AM
Options. Saving is options. At 23 I wanted to work forever. At 33 I could easily see myself working until 65-70. At 43 I could be done working today. :-) The thought of working full time until 65 sends shivers up my spine these days. Probably a mid-life crisis. Ha ha. At this point I wish I would have saved more. Power save for 15-20 years and then walk off into the sunset. Hard to tell your 21 year old self to power save.
- Nick says:October 23, 2014 at 11:35 PM
I am 30 years of age and employed by an employer. In my opinion, we need to move away from 401k's, pensions and virtually every retirement vehicle out there, and shift toward an expanded, beefed up Social Security system. We need to eliminate the cap on which Social Security taxes are paid on and have a fully funded system that works for everyone, so that everyone can retire by the age of 65. This would allow young people to utilize their cash earnings NOW and do things like purchase a house or just enjoy life more. Then, once they retire, they are entitled to a guaranteed monthly income based on how much they contributed during their working lifetime. This also prevents senior citizens from living in poverty, because they will have an income, and spend that money, which is good for the economy. 401k's, IRA's and such retirement accounts are too complicated and risky for the average person.
- Steve Adcock says:November 22, 2014 at 8:34 AM
This country is funny sometimes, especially when it comes to education. It seems like any "real" job - at least what we perceive as "real" - requires 4-year degrees. It doesn't matter what the degree is in, so long as you have a degree. I think it completely devalues the entire concept of education. But be that as it may, perhaps people should reverse their thinking about savings and retirement. Most people establish a lifestyle, THEN figure out how much they need to save to retire at a certain age (and some people don't even do that - they contribute what they are told to contribute into their 401ks and other retirement plans and don't give a retirement age a second thought). Instead, perhaps people should first establish their desired retirement age (say, 40) and then design their lifestyle around their savings plan to make that retirement possible. Of course this is much easier said than done for most people because of the culture that we live in, but saving 50% of your income is usually a good starting point to retire early. And the earlier that people start, the better chance they have at retiring early. The longer you live in a consumerist lifestyle, the tougher it is to escape from it. Start early and make yourself believe that your future happiness is greater than your current desire to have the latest cell phone or most expensive cable or satellite television subscription. Your retirement-self will thank you, big time.
