Should we retire retirement? With 43% of Americans having $10,000 or less in retirement savings, and 27% with less than $1000, it is obvious that many people do not think for the future. In fact, recent research on people’s brains shows a tendency toward the use it or lose it mentality extending to people’s money [...]]]>

Should we retire retirement? With 43% of Americans having $10,000 or less in retirement savings, and 27% with less than $1000, it is obvious that many people do not think for the future. In fact, recent research on people’s brains shows a tendency toward the use it or lose it mentality extending to people’s money as well.

So when we understand this, what does that mean for retirement? Without Social Security or pension plans, most people would not have enough saved on their own individual merit (that is, outside of some government or corporate plan) to retire. Most people, in fact, probably would not be able pay their income taxes if it weren’t for tax withholding!

Even in “standard” retirement planning, they say you need to have 80% of your pre-retirement income. You do NOT need 80% of your pre-retirement income you actually need 80% of your pre-retirement expenses! By saying income, the conventional wisdom is saying that people generally spend (expend) ALL of their take-home income. However, if you are a prudent saver, you should not be spending anywhere near what you take in.

For me, we only spend about a quarter of what we take in. And with that 75% saving, we are actively looking for investments to help it grow. Because we would like to be able to not work a traditional job by about age 35, this is about the only way to go. But there is no way to figure that in the retirement calculators most people use.

For instance, in the aforementioned retirement calculator, they need to know your current age, your current income, when you want to retire, what percent of your income you’d need to retire, how long you think you’d live, how much you’d get in pensions, and how much you’d get from Social Security. Well if we want to “retire” at 35, how would they calculate that? Do they calculate Social Security when we turn 65? Our 401(k)s that we can’t use until then? Pensions that we couldn’t use until then? Would we be able to count our passive income streams as pension amounts? Would I put 25% of my income since that is all we use now? Or would I put less since we wouldn’t need all the work peripherals? The calculator just does not  apply for people who think outside of the box. It is not for Fruitfulistas.

So if retirement is not really a possibility for most people without Social Security or corporate pension plans and it is not really considered retirement for people who are active savers and investors (like us and you reading this!), do we need to have a new paradigm as it relates to retirement?

Maybe we need to have another end goal. I’ve talked to many people about their retirement goals, and because to them it seems so far off, they say things like, “I’ll just keep working till I can’t” or “I like working, I like knowing where my next paycheck will come from”, things of this sort. And working in and of itself is not such a bad thing. If people like to work, then why force or otherwise pressure them to stop? And if people have the means to stop early and change paths, why don’t we allow for that? Even though retirement is a fairly recent concept, why is it that it has become a prescribed standard? Why is everything so standardized?

I was looking into annuities the other day, and I couldn’t even buy one because of my age! Just as you can’t use your own retirement money that is placed in a system (like 401(k)s and IRAs) until a certain age, I could not buy an annuity until a certain age. That basically leaves us with the options of direct investments with our after-tax take home money. And for everyone else, it leaves working…and all of their financial future at the hands of someone else which is never the safest route, even if it is the most comfortable. If you are working because you love it, that is one thing, if you are working because you have to, that is another.

For many people, retirement should be similar to work before, but at your own pace

I think we need to come up with another word other than retirement. And it’s not just because the standards don’t apply to everyone either. A large number of people  have their whole identities are wrapped up into what they do experience a huge loss when they officially retire, and many people feel that they have been “put out to pasture” and no longer are useful to society. To many, their work is the purpose in life. Without it, they quite literally die.

So, perhaps in the future, Social Security may or may not be around and the word retirement may have to be retired. Retirement was, after all, just an experiment. Those who we say retire early are not really retiring, but doing what they would prefer to be doing, and making money at it to boot. Those who enjoy working should continue doing so until they find something else they like better, but they shouldn’t stop working because of a prescribed pattern.

This isn’t to say that we should stop saving or encouraging so-called retirement planning because it is always good to save. It will always bring more security and as you get older, you lose a little of this. But retirement should not be thought of as standard or a single event, but rather a very individual, specific plan to not only live sustainably financially but also emotionally well into the future. And to many whose life’s purpose is in their work, that may mean continuing to do so, but perhaps at a different pace or time schedule.

Americans should be outraged over 401(k)s but for some reason, they are not. For some reason, 401(k)s (and IRAS for that matter) have become mainstream and actually promoted and accepted by most financial advisors. This includes some people who I think overall have a pretty good [...]]]>
This is just a disappearing mirage in the distance

Americans should be outraged over 401(k)s but for some reason, they are not. For some reason, 401(k)s (and IRAS for that matter) have become mainstream and actually promoted and accepted by most financial advisors. This includes some people who I think overall have a pretty good head on their shoulders when it comes to finances like Ramit Sethi, author of I Will Teach You To Be Rich. He and many others continue to promote this myth that “investing” in the stock market through your 401(k) will make you rich. This is not investing in my vocabulary. This is gambling! You have no control on the outcome and you are just hoping that the house (the system) will let you take a small chunk of the cake (profit) that they make every day.

When I first started reading about financial advice, this was the constant mantra -invest early in your 401(k) and enjoy non-taxed gains for years until you retire when you are 65 or older. Back then, they said, enjoy returns on average of 12%. Then the books said 10%. Now they say 8%. Eight percent?! And I have no control over the outcome, and I have to lock up my money for 40 years before I see the POSSIBLE benefit!? Sounds like a conspiracy or something.

Well, come to find out, if you look a little deeper, just like many things, it really is a conspiracy that was made between the government and the corporations not long ago. Once upon a time, if you worked at a corporation for many years, you would be guaranteed something called a pension. Now, this word has been all but stripped out of our language as companies jumped eagerly to the 401(k) model. The pension plans had what was called a “defined benefit” meaning that if you worked a certain amount of time you were guaranteed to be paid out a defined amount of money for the rest of your retirement. The big businesses noticed that this was costing them a lot of money, so they looked to some other way out of paying for pensions. Together the big businesses and government made a pact.

They would create these 401(k)s and IRAs that would allow people to make a “defined contribution” without any defined or guaranteed benefit in the end. Then they sold it to the unsuspecting new generation in shiny wrapping paper as a great deal. To sweeten the deal, the companies would even give “matching” funds. While you should take advantage of these matching funds and maximize your 401(k) in this way, it is besides the point. The matching funds from the employer are nothing compared to the pension you could be getting.

This benefits the corporations in many ways. 1) They don’t have to pay the retirement pension for many years 2) It is voluntary, so many of the employees won’t sign up and take advantage of the free matching anyway which saves the companies tons 3) It puts all the responsibility of retirement on the individual instead of the corporation and 4) It further entrenches us to believe that the corporations are all powerful beings. We buy their stuff at the big box stores, then we work at their stores, or if we are lucky, at their corporate offices, and then we buy their stock or bonds in the form of our 401(k)s. What a scam!

And the government is no better, because they tax you to death if you try to touch your own money above and beyond the taxes you would have paid. And if you lose all your money in the stock market gamble? So sad for you.

My recommendations would be to take advantage of the 401(k) in so much as the match is free money, but don’t play the market with it. Stay conservative with this gambled money. Utilize your saved money to play real direct investments that you control. This may be becoming a silent or active partner in a business and buying things that bring in passive, residual income. These opportunities are everywhere -big and small! And they are much better than the stock market. For instance, we recently bought a house for $50,000 and are able to make $700 rent on it. That is approximately 17% return on investment, not counting appreciation on the property -much bigger than we could ever get playing the corporate gamble.

What’s the biggest scam about 401(k)s is that even if you have a great idea for an investment, even a long-term investment, they (the corporatocracy) will not allow you to touch that money without a huge penalty. For people who have no discipline in saving and who are just starting out learning about finances, you should actively practice saving, and 401(k)s, Roth IRAs and other investment vehicles might help make it an automatic habit (just like automatically taking out our income taxes, you don’t miss it if you never see it).

But for those of us who are beyond the basics and are trying to turn the system around, those who instead of being a slave to the 8-5 grind and corporate structure want to get out of the rat race and make the system work for us, we need to WAKE UP. Don’t be fooled, 401(k)s are an outrage we should not put up with. Put your money where it makes the biggest impact to make you free, not into the system that is oppressing you.

For more on this, check out this Free Republic article.