Retirement is a scary thing to think about. Many people think that they’ll never be able to retire, that they will be forced to work until they die.
But it’s worth taking a look at what retirement is and whether it’s really as impossible as it seems.
How do you define retirement?
Take a minute to really think about what retirement means, as the definition isn’t universally agreed upon.
Many people think that it’s a time when you stop working. But I know plenty of people who have retired and still are working. Some do it because they have to, but some do it because they want to.
In fact, not only do I disagree with retirement being defined as “the time when you stop working”, but I don’t even think we should move toward a time when we don’t work. As nice as it sounds at first, I also believe that if you have no major anchor points to your day, after a while of not working, it’s going to drive you a little crazy.
We need a sense of achievement and fulfillment. There is work we do for income, and there is work we do for fulfillment. And it’s the latter that is what we ought to be seeking out.
So I define retirement as the point at which you focus on fulfillment more than mere income.
Or, more financially: the point at which your money works for you harder than you work for it.
65 is the new 45
But even thinking about retirement as an inflection point, the point at which everything changes, is misleading. There’s a widely-held belief that when we get to a certain age (usually age 65), and we immediately go from working for income to not working and receiving income.
Where did this veneration of age 65 come from?
I’d say it comes from the time of Franklin Roosevelt, champion of the original Social Security program, started in 1935.
Back then, if a person worked until age 65, that person was entitled to a certain guaranteed income from that time on.
But lifespans have changed. Back then, a 21 year old had only a 50% chance of making it to 65. Today, if you’ve made it that far, your life expectancy is around 80. That’s a lot more time we get these days.
And yet, we still hold 65 as this pivotal moment where everything needs to be figured out.
It’s not unlike those who felt like they “needed” to get married before age 30 or else their life would be over (and they would be alone forever). I know people who were like this. For those who weren’t willing to settle, they reached 30, and found that surprisingly, their life still continued! (And I have it on good account that people to meet and match up after age 30.)
Your situation is your own, and the external metric of age 65 is only going to make you compare yourself to others. And we know how that ends up.
Putting aside the question on whether Social Security will be available when you are ready to collect it (personally, I say it doesn’t matter) there are some important lessons here:
- You have more time than you think you do.
- You get to decide what it means to be ready to retire.
You can invest successfully for retirement
I believe investing is the only universal way of saving enough money for a comfortable retirement. It doesn’t take a lot of time in your daily life, it doesn’t take a lot of skill, and it doesn’t take a lot of money (at least at any given time).
What it does take is time for things to develop. Time for compound interest to accrue. Time for your wealth to grow.
To live off your investment, you must live off your returns.
If we’re being moderately conservative, let’s assume that you can take 5% out of your investments each year and not deplete the principal. So this is a simple math problem:
Monthly amount you need to live on × 12 ÷ 5% = How much you need to save
Let’s say that your bills and expenses currently total $2,000 a month. (If you don’t know this, you can figure it out by learning the secret life of your money). Chances are your needs in retirement will be less, but let’s stay conservative here.
How much would you need to accrue to yield $2,000 a month in income, without reducing your principal?
Through the above equation, we’re looking at around $480,000.
If you put away $300 a month for the next 30 years, you would have $480,000. (Assuming 8% interest, which isn’t too aggressive.)
Could you not find $300 now? Well, I’d argue that you might be able to, but assuming you couldn’t, think about how much you’re paying in debt payments right now. Think about the moment when you shift your debt payments to investment. Think how quickly you could grow your investments. Believe me, you can do $300 a month.
And plus, you’re going to make more money in the future, so you can commit more to this goal as time goes on.
Is this going be easy? No. But it’s not complicated. What you need to do is to commit to investing. And commit to automating it so you don’t feel the loss of the money now.
I believe retirement is possible, but it’s going to take focus and dedication over the long haul. Everyone of us, whether we’re 20 or 60, we need to be focused on our own retirement right now.
Think of retirement like a tree. As the saying goes, the best time to start saving for retirement is 20 years ago. The second best time is today.
But enough about me: do you believe retirement is possible? What does retirement mean to you?
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