This is a topic I've been bouncing around in my head for several months and is a nice follow-on to my last post about buying my own business. My new business is my 401k....and will hopefully have a much higher return.
Begin the rant....
Retirement is a myth. The "Greatest Generation" and possibly the "Baby Boomer" generation will be the last to 'retire', by the conventional definition. Further, all the advice financial professionals offer regarding retirement does more to line their own pockets than it does to contribute to your life. Strong assertions, to be sure, and here is why I believe it:
First, people were never meant to retire. When FDR rolled out Social Security, the age at which you could obtain benefits was older than the average lifespan of Americans. Social Security was just a tricky way to add a new tax. It was never intended to provide retirement benefits for the majority of Americans. The mistake politicians have made over the years is not that they borrowed against this fund, it's that they didn't continue to increase the benefit age at the same rate average life span increased.
Second, I question the whole premise of working hard from 22 to 62, saving 10%, or more, of your income, and then stop working at 62. I'm a huge fan of savings - my wife will tell you I'm too big a fan - but not at the expense of living. When you reach 62, one of two things will be true: 1) You'll be very healthy, full of energy, and, after a few weeks of not having something to do everyday you'll be bored and wish you were working; 2) You'll be too sick to work, which means you'll be too sick to enjoy "retirement".
Many people will counter that they plan to travel more when they retire and spend more time with family. Fine, but will you travel fifty-two weeks a year? How much will that cost? And will your family be retiring with you so they can spend as much time with you as you'll have available? Both are unlikely. If you want to see if you are truly ready for retirement, take two weeks off of work but don't plan anything. Don't use those two weeks to take a vacation, or do a house project. Just take two, random weeks off and see how you spend your days. My bet is you'll be bored or end up spending way too much money (just see the studies of people who work 4, 10 hour days and how those three day weekends affected their finances).
I prefer to take mini-retirements every year. I'll take a big vacation - one probably a little more expensive than I can afford - because I'm buying memories now that I cannot get in retirement when my kids have their own kids. Plus, I have time arbitrage on my side. If the vacation I want to take is a little too expensive now, it just means I have to work an extra 3, 6, or 12 months towards the end - or find new ways to make money today (which is my preferred approach). Why should corporate America get all my best years? I want some of my best years for myself and my family.
Finally, the financial experts want us to save too much money. Why? Because they are paid based on the size of our portfolios. The larger the portfolio, the more they earn. Their pitch is always the same: "You want to maintain your standard of living in retirement, so you need the same income." They take your current income and determine the "nest egg number" that your income is 5% of, and then formulate a plan for how to get there.
Think about that for a moment. What is your single largest expense today? For most people, it's a mortgage payment. Most mortgages are 30 years. Will you still be paying a mortgage when you retire? Likely not. You may even downsize your house, so the rest of your expenses will be lower, too. Even after adjusting for inflation, you are not likely to need anywhere near your current income to maintain your current standard of living. Unless.....
Medical bills are the big X factor, and this is where the biggest "matter of opinion" comes into play. Having lived overseas and seen the cost of medical care in Indonesia and Singapore, I can tell you the American medical system is broken and too expensive. Medical insurance is a waste of money. A perfect example is Dental insurance. If you are like me, and you brush and floss regularly, you are actually losing money by paying for dental insurance instead of just paying out of pocket for your two annual visits - the premiums exceed the cost of two visits. Medical care is the same - if you are healthy, take good care of yourself, and avoid the "lifestyle" illnesses (diabetes, smoking related illnesses), you are better off paying out of pocket as you go.
The one caveat to all of that is catastrophic care. If you are in a major car accident or are diagnosed with cancer, the bills will be outrageous. I choose to cover this with a catastrophic medical insurance that kicks in once my medical bills exceed a certain amount. Prior to that number, it is all out of pocket. Bucks conventional wisdom, yes. Puts most people out of their comfort zone, yes. It is also the more rational and better economic decision.
One final thought. What happens to all the retirement money you've saved when you die? You can't take it with you. You also can't will it to your heirs. The government wants half of it, at least. Why give it to them? Spend it on yourself and your family while you both are around to enjoy it together....just make sure you have 6 months of expenses in your savings account at all times. Never know when the income will stop.
My controversial rant is now done. I will return to the regular programming in my next blog.....
Begin the rant....
Retirement is a myth. The "Greatest Generation" and possibly the "Baby Boomer" generation will be the last to 'retire', by the conventional definition. Further, all the advice financial professionals offer regarding retirement does more to line their own pockets than it does to contribute to your life. Strong assertions, to be sure, and here is why I believe it:
First, people were never meant to retire. When FDR rolled out Social Security, the age at which you could obtain benefits was older than the average lifespan of Americans. Social Security was just a tricky way to add a new tax. It was never intended to provide retirement benefits for the majority of Americans. The mistake politicians have made over the years is not that they borrowed against this fund, it's that they didn't continue to increase the benefit age at the same rate average life span increased.
Second, I question the whole premise of working hard from 22 to 62, saving 10%, or more, of your income, and then stop working at 62. I'm a huge fan of savings - my wife will tell you I'm too big a fan - but not at the expense of living. When you reach 62, one of two things will be true: 1) You'll be very healthy, full of energy, and, after a few weeks of not having something to do everyday you'll be bored and wish you were working; 2) You'll be too sick to work, which means you'll be too sick to enjoy "retirement".
Many people will counter that they plan to travel more when they retire and spend more time with family. Fine, but will you travel fifty-two weeks a year? How much will that cost? And will your family be retiring with you so they can spend as much time with you as you'll have available? Both are unlikely. If you want to see if you are truly ready for retirement, take two weeks off of work but don't plan anything. Don't use those two weeks to take a vacation, or do a house project. Just take two, random weeks off and see how you spend your days. My bet is you'll be bored or end up spending way too much money (just see the studies of people who work 4, 10 hour days and how those three day weekends affected their finances).
I prefer to take mini-retirements every year. I'll take a big vacation - one probably a little more expensive than I can afford - because I'm buying memories now that I cannot get in retirement when my kids have their own kids. Plus, I have time arbitrage on my side. If the vacation I want to take is a little too expensive now, it just means I have to work an extra 3, 6, or 12 months towards the end - or find new ways to make money today (which is my preferred approach). Why should corporate America get all my best years? I want some of my best years for myself and my family.
Finally, the financial experts want us to save too much money. Why? Because they are paid based on the size of our portfolios. The larger the portfolio, the more they earn. Their pitch is always the same: "You want to maintain your standard of living in retirement, so you need the same income." They take your current income and determine the "nest egg number" that your income is 5% of, and then formulate a plan for how to get there.
Think about that for a moment. What is your single largest expense today? For most people, it's a mortgage payment. Most mortgages are 30 years. Will you still be paying a mortgage when you retire? Likely not. You may even downsize your house, so the rest of your expenses will be lower, too. Even after adjusting for inflation, you are not likely to need anywhere near your current income to maintain your current standard of living. Unless.....
Medical bills are the big X factor, and this is where the biggest "matter of opinion" comes into play. Having lived overseas and seen the cost of medical care in Indonesia and Singapore, I can tell you the American medical system is broken and too expensive. Medical insurance is a waste of money. A perfect example is Dental insurance. If you are like me, and you brush and floss regularly, you are actually losing money by paying for dental insurance instead of just paying out of pocket for your two annual visits - the premiums exceed the cost of two visits. Medical care is the same - if you are healthy, take good care of yourself, and avoid the "lifestyle" illnesses (diabetes, smoking related illnesses), you are better off paying out of pocket as you go.
The one caveat to all of that is catastrophic care. If you are in a major car accident or are diagnosed with cancer, the bills will be outrageous. I choose to cover this with a catastrophic medical insurance that kicks in once my medical bills exceed a certain amount. Prior to that number, it is all out of pocket. Bucks conventional wisdom, yes. Puts most people out of their comfort zone, yes. It is also the more rational and better economic decision.
One final thought. What happens to all the retirement money you've saved when you die? You can't take it with you. You also can't will it to your heirs. The government wants half of it, at least. Why give it to them? Spend it on yourself and your family while you both are around to enjoy it together....just make sure you have 6 months of expenses in your savings account at all times. Never know when the income will stop.
My controversial rant is now done. I will return to the regular programming in my next blog.....
Posts
No comments:
Post a Comment