The process of retirement planning continues in Casa de Bart thanks to the calendar advancing and receiving an official plan from a financial planner. The recommendations included increasing my savings, deferring my retirement until a later point, and reducing my expectations for post-retirement spending. Nothing too surprising, but the more I think about it, the more I realize how bloody improbable the whole business looks. Follow me on this; it might provoke your own thinking as well.
What IS Retirement, and How Likely Is It, Anyway?
Most people think they understand what retirement means, but a surprising number of people believe that they don’t need to save for retirement or that they’ll be able to live off of Social Security come the day they turn 65. If only!
Retirement is something that didn’t even become a real thing (if you believe Wikipedia) until the 18th century. It’s the notion that you no longer have the ability or willingness to work in a given field any longer and can take yourself out of the workforce. As retirement became a thing for the middle classes, the notion has changed quite a bit. Social Security for old age didn’t even become a thing in the United States until the Great Depression of the 1930s. There are a lot of criticisms of the U.S. Social Security process, which I won’t get into here; however, I would say this: it’s not a good bet to be a sole source of income in your old age. As a rather cynical Generation Xer, I have doubts that this “safety net” will even be around in its current form in 20 years; however, my inner cynic also realizes that no elected official wants to be the first to eliminate it completely.
Anyhow, the ideal retirement strategy for wage earners is to save enough over the course of your working life so that you’ll have some of your own money to live on in the years after you’re no longer working full time.
Some Reality Checks
I thought I was doing pretty well with my savings until I spoke to someone who actually does financial planning, and he awakened me to a few harsh realities:
- Economic volatility over time: The value of savings depends greatly upon general economic conditions in your country of residence and the world at large. We had a major recession in 2008-2010; before that, we’ve had something like 5-7 smaller recessions in the last 50 years. That translates into slower or “negative” growth once a decade. Capitalism is the worst system except for all the others, so to speak. Bottom line here: while compound interest can work wonders over time, so can inflation and occasional economic hiccup, so the more you can save, the better.
- Estimated annual expenses in your retirement years: On the plus side, a retired person might not need to drive a vehicle around as much, travel as much, or buy as many new clothes or other possessions necessary for a working life. However, some might want to eat out more because they don’t want to sit around at home all day. Also, older people are more subject to illnesses and other ailments. Government-funded programs like Medicare and Medicaid and provide some relief, but that program, too, is under a great deal of pressure and scrutiny. Other things that affect your post-working expenses are things like where you live–nationally, regionally, and even locally. How are the taxes? How much is your mortgage payment or rent? How much are groceries?
- Healthcare issues: Coming back to this issue because in addition to sudden illnesses draining your retirement income, there’s also the possibility that as you age you might not be able to find work (see my “Ageism” discussion in my November 29, 2018 entry). Or you might find yourself disabled for any number of reasons that keep you from working until the age you had planned. Then, too, we’re learning more about medical problems like Alzheimer’s disease, which could diminish our ability to work. OR, we might find a cure to Alzheimer’s, in which case we can work much later in life. That leads me to my last point…
- Longevity of your money vs. your body: My grandfathers both died in their early 70s. However, my father and uncles are in their 70s or 80s. We’re living longer, which means needing your money to last longer. How long do you expect to live after retirement? As noted in the Bible, “Who of you by worrying can add a single hour to his lifespan?”
What CAN You DO?
I don’t want to be all doom and gloom here. There are actions you can take, and the younger you take them, the better. Mind you, I’ve had friends in their 30s and 40s who are convinced they’ll never be able to retire, which is a fear that has caught me on occasion…I can see them finding my corpse slumped over my computer one day. Save what money you can anyhow.
A non-professional’s way of estimating how much you need to retire is to take a look at your basic annual expenses now and to multiply that number by the rate of inflation (2.5-3 percent per year in the U.S. for the last 30+ years) for each year until the year you could expect to pass on from natural causes. This is a relatively easy Microsoft Excel exercise. Now add up the totals from the year you plan to retire until the year you die. That is the amount of money you need to live on in inflated dollars. Ideally, you want to exceed that amount so you can live out your life from retirement until your demise.
Again, those numbers leave out things like what sort of growth can you expect out of interest or investment growth, but ideally whatever you save/invest is growing as well–and preferably at MORE than the rate of inflation. And yes, it’s fair to use your Social Security numbers in there, too. They should be sending you a statement every year.
Retirement is a luxury activity, to be sure. It also makes a LOT of assumptions about the future (the number of caveats and fine print on my financial plan includes words that amount to “Past gains are are no guarantee of future performance.” You could die in a car crash tomorrow. They could find the cure to cancer next Tuesday. We could find ourselves basking in the wealth of an economy fed by resources from space. Financial planners are conservative because they have to be–they’re advising people on their money–so if my article here has scared you a bit, that’s okay; it scared me, too, when I started absorbing all this. They assume that things will remain relatively stable and that we’ll have an economy and banks and investments to draw upon in 20-40 years…but that there might be slight hiccups along the way. That’s still a good way to plan, so you might as well give it a try. I am.