Certain sayings or ideas get repeated so often throughout time that they become second nature to say or believe. Our moms always told us not to put our eyes like “that” or they would get stuck (I’m an eye doctor and that is not possible). They also tell us over and over to eat our vegetables. That is something we should be doing and something I do a lot of, especially if you count fried potatoes as a vegetable. At some point things become so repetitive and automatic that we just recite them without even delving into the reasons why.
This could not be more true when it comes to personal finance. One piece of advice you hear from many people is that you need to buy a house. It’s just the way things are done and if you’re old enough and have enough money, just get a house. People who followed this advice during the recent housing crash would beg to differ. You have to be able to AFFORD the house before you can buy it, even if interest rates are low. And the interest rate deduction is not as awesome as most make it out to be. In any case, “you must buy a house” is a piece of advice that gets repeated over and over but should not be followed blindly.
Another idea that you hear get repeated over and over is the importance of saving for retirement. Talk to any financial planner and visit any financial blog (including this one) and you will inevitably see a post on the best ways to save for retirement. This gets repeated everywhere so I thought it might be a good thought exercise to think of the reasons why we should save for retirement and if there are any compelling reasons not to. After doing some hard thinking, casual interviewing and meticulous research (Google), I’ve realized that saving for retirement is something that EVERYONE should be doing and there is no reason not to. I’ve listed some possible reasons why retirement savings aren’t that important, and then proceeded to explain why those reasons are dead wrong.
1. I LOVE my job and could not see myself ever leaving: This is the reason I have come across the most, but it is dumb on so many levels. Loving your job at age 30 doesn’t mean you will love it at age 60. Heck, you might not even love it at age 31. Many things can make you not enjoy your job as much later in life such as changes to your industry, office politics or not feeling fulfilled. Many people in their 50’s and 60’s now did not stay with their current company or even their current field all their life. You really have to plan for the fact that you may not like your job so much at some point. Not saving for retirement because you think you will die on the job you love is one of the most foolish things I have ever heard.
Another reason that depending on your undying love for your current job is stupid: life may have other plans for you. You might get laid off or see your position disappear. But more likely, your health could be jeopardized. According to the Social Security Administration, 25% of 20 year-olds will become disabled at some point in their lives. That means you probably won’t be making much money during a sizable time period in your life. Health care issues are by far the number one reason people declare bankruptcy. Human health is a fragile thing, and you have to almost expect your health to fail at some point. Knowing all this, not saving for retirement because you think you will always be on the job is one of the most irresponsible things you could do to yourself.
2. I want to enjoy my money now instead of when I’m 70: This is one of the reasons I have heard that actually has some merit. There is some wisdom to the idea that life should be enjoyed in the moment, and I agree with this. We only get a limited amount of years on this planet, so why spend it worrying about the end of our lives while we can enjoy the present? We’re young and healthy, so let’s take advantage of it! This is not a bad motto to live by, but if enjoying life to you means spending all of your money, then you have some bigger issues to worry about.
I agree that we should take advantage of our youth and travel and explore when we can. But this is just one chapter in our life. The average US life expectancy as of 2011 is about 78 years. Most people retire in their early to mid 60’s. That means you have potentially 20 years to live without the help of a paycheck. Simply ignoring this chapter of life because you want to have more fun in your 20’s and 30’s is not a smart decision.
The solution? Put your retirement savings on autopilot and enjoy what you can on the rest. You can focus on enjoying your young years (which is important) without putting your retirement years in jeopardy. Besides, there is nothing that says you will not be able to have fun in your 60’s and 70’s. If you keep relatively good health, you will still be able to travel and work on your hobbies while being able to spend more time with family and friends. We need to focus on preparing ourselves for each chapter of our life, not just the one we’re currently in.
3. If I put money away for retirement, then I won’t have enough to cover my expenses: People who use this as a reason not to save for retirement really have some problems. If your day to day expenses are so high that you are setting yourself up for failure during retirement, you have to make some changes. Right now. If credit card debt is the culprit, which is true for many Americans today, get those paid off in full ASAP so you can start contributing to retirement. Contributing to a retirement account while paying 20% in interest on credit cards is not a wise move anyway. You also need to cut expenses and use that money to help pay off the credit cards or start contributing to your retirement account. If you have a workplace 401k, start there because the hit won’t be as bad since it is taken out before taxes. If you have some serious issues like healthcare bills, you really need to cut out your unnecessary expenses until everything is in order. Treat it like an emergency because once you retire and have nothing to live on, that’s exactly what it will be.