Maybe retirement should be a right, like high-speed internet that is written into the constitution in Finland (Thanks for that bit of info, AP!), but it simply isn’t.
Just the other day I was talking to my sister and trying to coax her into saving a little for retirement.
Her response (typical of my generation I think), was: Why worry about it? It’s 40 years off.
I laid out the scenarios for her about saving $10,000 this year and how much it’d be in 40 years, and she finally agreed to fund her retirement just a little.
Granted, before getting into learning how to manage my money and all this PF stuff I’m writing about now, retirement, debt and savings never even crossed my mind until I got my first job out of college.
Isn’t it funny? (Or maybe sad? :P)
It made me think about the reasons why we don’t think about the future, even when we know it’s “good” for us to do so:
- The “future” is based on the concept of time, invented by humans
- Saving for the future is also an abstract concept that requires understanding what “retirement” means*
- Actually, 40 years is a long ways away
- We think we have enough time to save before we get to that point
- We want to enjoy our money and live while we’re young and healthy
- We just don’t think about it (denial?)
*Retirement to me, means that as I get old, crochety, tired and less agile, I won’t be forced to go to work to pay for my food, shelter and clothing. I’d go to work because I’d want to.
(A shopkeeper napping in Macau)
RETIREMENT IS NOT A “GIVEN” RIGHT
If we don’t have money to retire, we cannot retire.
If we haven’t saved enough to pay for the years when we don’t work, we cannot retire.
Retirement is not something that happens magically overnight once you hit the age of 65. You aren’t handed a golden key on your 65th birthday and told to go play golf until the sun goes down.
I think this idea of retirement not being a “given” if you don’t plan in advance, is something that’s difficult for a lot of us to imagine.
I thought (in college years), that once I hit 65, I’d retire and life would be golden.
HOW I would get there, was a whole other story altogether. I didn’t even think about saving for retirement.
I just assumed the money would eventually, somehow.. magically.. appear once I hit 65, and I wouldn’t have to worry about it because “other people” (fictional characters) were worrying about it for me and I didn’t have to.
Doesn’t that sound utterly stupid?
But it’s what I thought. I just assumed there would be money at 65, eventually.
RETIREMENT USED TO BE KILLER PENSION PLANS
Remember the good ol’ days everyone likes to talk about?
The days when you stayed at a company for 40 years after starting your career with them?
The days when they’d pay for your pension for as long as you or your spouse would live, because it was written into your employment agreement?
These days, instead of an employer looking out for your interests and planning for your future as their precious worker when you hit 65, you are expected to plan for your own future.
Or the government would take care of you… but as we’re starting to realize, the government is running out of money because there’s an influx of retirees on the market and not enough young’uns to pay taxes to cover them!!
RETIREMENT PROBABLY USED TO BE CHEAPER
I feel like it wasn’t as expensive in the past, because there wasn’t too much you needed or wanted because you didn’t even know it was possible or it didn’t exist.
Today, we have TVs to “educate” us about what lives are like, vacations all over the world, fancy restaurants of all types of cuisine and so much entertainment accessible to us that it’s hard to choose or say “No” to anything.
In the past, I feel like no one felt entitled or the urge to travel the world once they retired because it wasn’t something that crossed their minds.
No one felt like they needed to vacation in Florida for 6 months of the year during winter, or golf all day long at fancy clubs.
People just sat at home and lived out their lives simply without realizing there was “more” out there. ‘More’ is not necessarily better, either.
Perhaps they were just farmers, like BF’s grandparents, who just wanted to sit at home, eat a little cheese and bread, make their own wine and play with their grandchildren.
RETIREMENT = SAVING IN ADVANCE
Simple, no?
Retirement to me is saving for double the years of my life.
People are living a lot longer these days. Instead of dying 10-15 years after they turn 60, they are now living well into their 80s and 90s due to the miracle of modern medicine.
This means that if I start working at 25, and I retire at 65, I have 40 working years in total.
However, if I live until the age of 90, I have to pre-save so I can pre-pay for 25 years of retirement! This is all after inflation, to boot.
So retirement? It’s simply saving in advance so you don’t have to be forced to be a Wal-Mart greeter at the age of 65 because you didn’t plan for it.
Just a girl trying to find a balance between being a Shopaholic and a Saver.
I cleared $60,000 in 18 months earning $65,000 gross/year.
Now I am self-employed, and you can read more about 
I have several friends who pay zero attention to their retirement because it’s 40 years away. I respond by showing them how every dollar invested in their 20’s will go much, much further than every dollar invested in their 40s or 50s. They nod and say “that makes sense.” Then they don’t do anything about it.
An ostrich with its head in the sand, comes to mind.
That whole attitude that it’s going to be covered by someone else or that you’ll worry about it later is quite odd to me.
I do agree with previous commenters about agrarian communities a little bit out of personal experience. I watched my grandma work well into her 80s even though she was comfortably situated. She contributed to charities, helped less fortunate family and never wanted to stir from her village, not even to visit her clamoring grandchildren across the world. It wasn’t her thing and that was all there was to it. But in watching that, it made it more clear to me how important it was to plan ahead if I wanted not to have to work that far into my old age against my will.
That’s true. BF’s family worked into their 80s in the fields, but they just “saved” extra food and corn on the side for when the harvest wasn’t so hot. It was their “retirement”, that extra food.
Thanks for this great article – I featured it in my weekly round up in “the best of the rest” http://rosstaylor.org/ross/ask-ross/the-best-of-the-rest-july-15-2011/
I think a lot of people don’t know enough about what they are actually entitled to when they retire as well. In Australia, the welfare for aged pension would be enough to cover basic living costs if you were debt free and lived simply, but definitely not if you had debt.
Most of my peers have no idea what the actual entitlements are, and that they actually have to be eligible to claim welfare. Many of them think they will instantly receive money when they hit retirement, whether they earn $20k or $100k and whether they have savings or not. Heck, some even think they can retire whenever they say so and get money, or that they automatically get welfare if their partner is retired. Not kidding – I had this conversation with someone recently. Pretty scary what assumptions are out there and where they can get you.
I was one of those! I’m glad I’m done.
I don’t look at it that way.
“This means that if I start working at 25, and I retire at 65, I have 40 working years in total.
However, if I live until the age of 90, I have to pre-save so I can
pre-pay for 25 years of retirement! This is all after inflation, to
boot.”
If you look at it that way, it’s pretty darn depressing. Work like mad for 40+ years and then you’ll be too old and tired to enjoy life. I think it’s better to build up enough of a nest egg that you’ll be comfortable with. Then find something you enjoy doing and make a bit of money instead of working for the man. In the future, most retirement will be a working retirement. Hopefully, I’ll have a part time job that I enjoy doing.
Who says you have to work like mad? It all depends on your expenditures. If you spend like mad, then yeah… you have to work like mad.
I’m in my late 20s and out of the past 4 years of working, I’ve only worked 12 months.
Also should mention that the term is hyperbolic discounting.
http://en.wikipedia.org/wiki/Hyperbolic_discounting
I don’t think people that aren’t saving are really aware that their future may involve wearing a name tag and greeting strangers in a gray store.
It’s definitely a lack of action, part denial, part laziness…
I read that in Singapore the government makes you put part of each paycheck into a retirement fund. I actually think that’s a good idea. Personally though I think that a lot of people buy too much, and a lot of it is stuff they don’t use. I read that people use 20% of what they buy.
I can name on one hand the items that I use constantly each week. I still think retirement is possible, you really need to know your own habits before you spend for a want. I also read that it takes decades for some people to be able to live like their parents did. I’m not sure if I agree with that, I do agree that our parents were able to buy houses on their own and it takes us longer to buy housing.
But the rest? Given the fact that you can buy things at various price levels, it’s hard to agree that it takes decades. I also think people would be able to breathe if they didn’t buy as many things. Do people really need dining rooms when they don’t entertain and use a kitchen table? There are so many things people buy for their homes that goes unused, or ends up in a garage or attic gathering dust.
If people cut out the things that they won’t use then they could save a lot of money. I try to own as little as I can without depriving myself. I’ve bought items before and never used them, and I’ve regretted wasting my money. So now I’m very careful and seriously think about an item before I buy it. I hate having buyer’s remorse.
I HATE formal dining rooms that’s true.
As for Singapore’s retirement fund, I’ve talked to a number of Singaporeans who love the idea, but are saying that even THAT is not enough to retire in Singapore, as it is ridiculously expensive these days.
The retirement fund you mention is much like our CPP (though more a “self-directed” DC than our DB pool) with a crapload more rules surrounding its withdrawal that causes much anxiety amongst the locals. On the downside, they also use this to pay down their mortgages over 30 year periods and thus are in some ways forced to participate in their ponzi scheme of a real estate market so that they don’t end up retiring asset-rich-cash-poor
I had dinner with a couple of friends the other day – one whose mom is 61 y.o. The father died of a stroke a couple of years ago. So she gets about $300/month for the CPP survivor benefit and whatever she makes from babysitting. She quit her job as a seamstress 2 1/2 years ago to babysit my friend’s baby and she lives with one of the kids now. It should be totally do-able for her to live on $1000/month. Heck, *I* can easily live on $1000/month if I take out my mortgage payment.
Anyway… my friend was asking me what kind of programs were out there where the government could support her mom since her mom was “too old” to be working. (Her mom is actually in pretty good shape). I said the only thing I could think of was welfare, but she probably wouldn’t qualify since she could be working making more than whatever she does babysitting her one grandchild.
Why did this bug me so much? I don’t know, but it just sounded like an entitlement mentality. What makes it even odder is that they’re immigrants that came from nothing, yet saved very little because they got sucked into having a new house (that wasn’t even close to paid off when they were in their 60’s), new vehicles, etc etc. on an income that didn’t justify that kind of spending. I just would have expected more fiscal responsibility and foresight from people who came from extreme poverty.
There’s going to be some rude awakenings coming for this baby boomer generation and my own Gen X’ers as well. One of my concerns is that governments will start taxing assets (as is already done in some countries) of all of those people who scrimped and saved their whole lives like my parents did to be able to afford basic subsistence living for people who were off spending everything. In a way they already do, since people like my dad, who at 91, gets his OAS clawed back because he makes too much money. Money that is made because he saved when everyone else was spending .
http://www.servicecanada.gc.ca/eng/isp/pub/factsheets/oasrepay.shtml
Another rant: How much of people’s poor health and not being able to work in their 50’s or 60’s is their own damn fault and poor lifestyle choices? In the farming community where I grew up, it’s not uncommon to see people working into their 80’s and 90’s, even centarians.
I AGREE!
As I said above, BF’s family worked into their 80s in the fields, but they just “saved” extra food and corn on the side for when the harvest wasn’t so hot. It was their “retirement”, that extra food.
They were in decent shape to keep going, although they probably drank and ate too much meat.. 🙂
I agree that retirement isn’t a right, but I have trouble with extreme cases. Like, if a person hadn’t saved a dime for retirement but became too infirm to work. What happens to them?
I wish everyone in our society was responsible and could handle the consequences of their choices, but that will never be true across the board. With the disappearance of pensions I think we’re going to see more of these cases, unfortunately, and it’s going to be a major impediment to any kind of opt-out system for Social Security (which I would love to personally take part in, but isn’t going to happen, and may not be best for our society).
There are a lot of people who still think American social security was/is meant to be the sole source of income for retirees. “you can’t survive on Social Security” people complain. Yeah, because it was meant to supplement your income, not replace everything on it’s own.
Pensions were a form of forced savings, and honestly, that worked better for many people… except companies also underestimated the costs and didn’t really tuck away the money any better than people. And it tied you to one company for life!
I save for retirement and have a small pension (for now… I still think it’ll be phased out over time).
In Canada, it is seen as something to be the sole source of income for retirees too. I don’t see people saving as much as they should, to live in a country that costs as much as Canada.
If they moved to a cheaper country like Thailand or Cambodia, or even to a cheap little middle-of-nowhere town in Canada, then yes.. it’s enough. But not if they want to stay in the big city.
Spare a thought for all those big spenders who do not save anything but just enjoy the good life. With no saving and no wealth whatsoever, they’ll never be able to retire!! Most will have to work until their health fails to pay their debts & survive. Pretty sad isn’t it.
Anyway, as usual, interesting post.
Thanks maz. I do think about those people working until they die… I have two aunts like that at the moment and it SCARES ME that they are in their 60s with half a million in a mortgage left.
Some of the friends we visited in Oklahoma City are 71 (she) and 75 (he). He is still working, driving a truck to deliver second hand appliances. He used to be a Teamster Union truck driver with a big salary and all, but he spent most of it and what he saved he put into company shares. When the company folded and was taken over by a larger one, he lost his savings and his seniority and so his job. Being as how he didn’t have a Union job the Teamsters didn’t want to know him any more and it took him years to get them to pay a pittance of the retirement he’d paid union dues to get from them. She had a job as an office manager but over time her health got worse and she retired at 69. They have a huge house with 4 bedrooms,sunroom, pool, etc. and $1300 a month house payments. That’s how much she gets from SS and he gets about $1000. They are giving up their house as they can’t keep up the house payments. His nephew has a little duplex and they are moving into it for the $500 a month rent. They haven’t talked to a realtor about selling their house because she ‘knows’ it’s not worth what they owe. It also needs quite a bit of updating and maintenance they have let slide. I don’t know any more details except for the 2 spare fridges they run in the garage one just for cans of coke. Mentions of casinos, she still smokes, they buy loads of convenience foods and eat out, have cable TV. They drive older cars and as they live in a suburb away from everything (sort of how the midwest just is, really), they use a lot of gas. I really ached for them losing their house – which makes them very sad too – but concluded that keeping their house simply wasn’t their top priority, as they’ve been there nearly 20 years and surely could have paid it down a bit. She seemed surprised they couldn’t live on their SS income and with $2300 a month (plus whatever he gets paid) I’m surprised too, but then I’d never agree to $1300 a month house payments unless I knew for certain I could pay it off before I retired. Also, as home owners they have not been good stewards. They are both lovely people, almost like second parents to me, but I can’t save them from the consequences of the many choices they’ve made. It’s not just young people with 40 years in front of them who don’t plan for the future. Some folks don’t see what is right in front of their nose.
I like your BF’s parents idea of retirement. I would be pretty happy with that, except I’ll not be having grandchildren. Bill might eventually. Having time your time and energy belong to instead of an employer is a big gift in itself and anything else on top of that is gravy. I’m lucky to have been able to retire at 51, but it is at least in part because I started working towards that in my late 20s. I can defnitely say it’s worth the frugal choices to be able to not work if I don’t want to.
That’s a good point. Some people can’t see what’s in front of them, when they have it good.
Perhaps they just didn’t think or do the math on how much it costs to eat convenience foods versus cooking, or running a fridge for a year, let alone 40 years, just for cans of coke.
Maintenance of a home is 3% of its value each year, saved into an account for when they need it in a pinch. If they don’t take care of the home properly, it just deteriorates even further.