Great Savings 24 – Redefine Retirement


It's never too soon to think about retirement.

The clock is ticking. Will you be ready when it’s time to retire?

Young or old, the idea of retiring may sound appealing. Yet as few people have the resources to retire at will, the expectation is most will end up working for the majority of their lifetimes. Unfortunately, while many people give the idea of retirement at least some thought over the years, statistics tell us few consistently put money aside for it. There are a ton of excuses for this, but the bottom line is it’s hard to stay focused on the long-term. Today we attempt to redefine retirement in the hope it may help people do just that.


When we think of retiring, we typically picture needing more money than Social Security provides for us. Thus, we set a goal to accumulate a substantial pool of  funds to help support our lifestyle once we stop working. For a moment, consider the amount of time and effort it takes to generate that pool of money. For example, suppose we earn $50,000 per year and desire a retirement fund of at least $250,000. Without accounting for interest or investments, it would take 5 entire years of our labor to generate that sum—that is, if we had no other expenses and could put all our wages toward it. When we view it this way, retirement becomes the day in our life when all the accumulated labor we’ve set aside for the future reaches a critical mass. On that day it’s no longer necessary to continue laboring to maintain a given standard of living.



Part of our Great Savings Tip series featuring hundreds of ways to save money and build wealth.One of the great benefits of retiring is we get to quit working because we no longer need the wages our jobs generate for us. The hope is we’ve put enough aside to cover any expenses social security or a pension won’t cover—everything from daily necessities to extraordinary items like medical bills. Yet large dollar figures are hard for our brains to comprehend. We know we’ll probably need lots of money for retirement, but it’s rare when we spend large sums so it’s difficult to grasp the real significance behind a particular dollar amount. This is where focusing on the effort spent accumulating a nest egg can bring home the critical importance of planning for retirement sooner rather than later.


Think about the salary you earn for a moment. It takes a whole year of work to accumulate that sum, correct? Now, imagine needing a sum several times your current annual salary to retire comfortably. That’s just like saying you need to “bank” several years of your labor. Here’s the rub: You can’t bank several years of labor when you’re already approaching retirement age without slashing your day-to-day expenses to an absolute minimum—there just isn’t enough time to expend the effort you’ll need to make up for it. It’s far easier to bank a few hours each month starting when you’re younger—even into your early twenties. Time is your friend when it comes to retiring, but only if and when you start early enough.


This may all seem rather obvious, yet obvious or not, according to the Employee Benefit Research Institute’s 2012 study:


More than half of workers (60 percent) report they and/or their spouses have less than $25,000 in total savings and investments (excluding their home and defined benefit plans), including 30 percent who have less than $1,000.


Most of these folks are apparently counting on Social Security and Medicare to pick up the slack in their daily living expenses. Unfortunately, “pension payments” like these are at best a fraction of a person’s regular wages and do little to nothing when it comes to emergencies. Thus, retiring for most people will result in a lower standard of living.


How can you turn the odds in your favor? Consider these three critical steps:


(1) Make time work for you, not against you. It’s hard to look past the end of the week much less years down the road. Nevertheless, focusing on the amount of time and effort necessary to generate a sufficient nest egg may help you grasp the urgency of starting sooner rather than later. Remember, it can take several years of laboring away at a job to generate sufficient funds for retirement so don’t wait until it’s too late and you’re out of time.


(2) Get out and stay out of debt. If you have debt, it’s important to get out of it as soon as you can. Just as retiring implies we’ve arrived at a point were we can tap into all the “effort” we’ve saved up over the years, debt implies we’re spending unearned future effort today. Stop to think about that a minute. Going into debt isn’t just about borrowing money. It’s about borrowing all the labor it takes to make that amount of money plus the interest the bank charges. In other words, we’re spending the bounty of our future effort today—that is the wages we haven’t yet earned. You could say paying back the debt means laboring long into the future for money already spent. And that implies having far less available to put towards retirement. In the worst case, debt actually threatens our ability to retire at all.


(3) Start a retirement savings plan immediately. It doesn’t matter how much you put aside. What matters is you’re putting anything aside and doing it on a consistent basis. Zero dollars saved monthly adds up to one big zero on the day you retire. Even $5 or $25 or $100 a month adds up to thousands (or hundreds of thousands if invested wisely) over the years. Once you get going, there are many more resources available. You can start by reviewing this U.S. Government website on Retirement. Or be sure to check out our post Plan For Retirement Now.


Action Plan: The time for excuses is past. To start your retirement fund, you can check with your existing bank or sign up at an online brokerage like Schwab or E-Trade. Open an IRA or take advantage of your employer’s 401K. Don’t wait. Start banking the bounty of your labor today. Take control of your future by making time your best friend.

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