Retirement Planning And Why It's Dumb
If you're over the age of 40, then you are likely considering if retirement is for you. For those who haven't planned their retirement, it's a perfectly practical decision to make. But for those diligent workers who have spent decades saving money and paying off debt, it might be worth reconsidering if that retirement plan will ever become a reality.
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In 1970s America, the average baby boomer could expect to retire at age 58 and enjoy 18 years in leisurely pursuits before kicking the bucket. Today, the average retirement age is 65 and the average retiree postpones retirement for 17 years.
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What happened?
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There are two categories: a) Americans who don't have enough money for their lifestyle, b) Americans who don't have enough money for their lifestyle because they spent their money on things like cars, big-screen TVs, exotic vacations and fancy restaurants.
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Americans who don't have enough money for their lifestyle could stop spending and invest the money instead. If they had the discipline to stop spending, those investments would grow exponentially.
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The second category: having spent all their disposable income on things like cars, big-screen TVs, exotic vacations and fancy restaurants, would see their 401k value decline to zero over time. The only way out of this financial trap is to live on less than they earned in retirement. This can be accomplished through reducing living expenses, selling assets and working longer.
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But if you spend the majority of your money on things other than investments, then those investments will do nothing but buy you more stuff you don't need. And this stuff will depreciate to nothing over time. The only way to not have a worthless pile of junk at 70 years old is for the stuff to appreciate in value rapidly… or spend every dime on valuable assets and sell them off one by one as you get older.
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So you don't have to worry about where your money went during your working years. You need to worry about where your money will go during the rest of your life.
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The first step to planning for retirement is figuring out how much you have saved. This should be the first thing every worker does when they start a job, because it's so easy to forget and so difficult to find out once you're retired. Just ask a financial advisor if you're not sure.
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There are two ways to calculate your retirement savings: gross-up and net-worth. To calculate gross-up, you take all of your expenses and multiply them by a set percentage so that "what's left over" is the money you'll have in retirement. For example, if you spend $100,000 a year on expenses over the course of your retirement, then at age 65 you will have about $65,000 for fun and leisure.
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Net-worth is simply determining how much your savings would be worth if you sold it off all at once. The answer is what's left over. This is the simplest and best way to figure out your savings.
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If you're under 40, it's not too late to invest in yourself. If you invest in yourself, you will learn new skills and earn more money.
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If you're over 40, it's not too late to become an entrepreneur. Yes, this will be a job that involves more work than your regular position, but it's also a job that will lead to retirement. As an entrepreneur, you will learn a wide range of skills and earn more income.
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If you can't find time to learn new skills or become an entrepreneur, then becoming a stay-at-home parent will allow you to leave work and make the biggest impacts on your life. You may not have the conventional retirement plan, but it is a plan that will lead to happiness and full-time enjoyment well into old age.
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You can do all of these things without having to be like every other old person in your neighborhood. If a job is the most important thing you have, then figure out how to make that work. Even if you can't find enough hours at work to buy luxuries like a car and television, you can still learn new skills and live comfortably for free on your savings until you're too old for that, too.
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I'm not going to tell you how to live your retirement. But I am going to give you an idea of how much it costs to live comfortably throughout retirement. Here are some numbers:
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Rent an apartment in a nice neighborhood +$2,000 per month.
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Car (a used Toyota Camry) +$150 per month.
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Cable television +$100 per month.
Conclusion
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Retirement isn't a right and it isn't a guarantee. If you want to live in retirement, then you're going to have to work for it. The good news is that there are many ways to earn income and many things that can be done cheaply. Even if you aren't able to buy the nice things you had while in your prime working years, you can still plan ahead and do the things that give you enjoyment without buying more stuff.