Listen.
Retirement is a touchy subject. Like, genuinely, deeply touchy.
Anytime it’s brought up in polite company (thanks to me, the bull in the conversational china shop. I don’t know why I keep getting invited to things, you all should know better by now) there are a few classic reactions.
The most frequent one?
“I’m never going to retire.”
Seriously, I have heard this from literally everyone who has ever spoken to me about money, in various degrees of joking tones.
There are all sorts of underlying things at play here, because it’s never just about not retiring. It can be pessimism about the future, it can be fear of not saving enough, it can be disappointment in how the market has treated you, it can be a genuine ‘I love my job’ or it can be about a million other things.
But can I just say what I want to say every single time this comes up?
You are almost definitely going to retire.
Yes, fellow millennials, you too.
You need to plan for it, no matter what you believe about the future of work or building a career you don’t have to retire from. You especially need to plan for it if your beliefs skew more towards the I’m-never-going-to-be-able-to-afford-it side of things.
Maybe you’ll do it later – much later, even – than your parents did, and the chances are good that unless you work for a government, you’ll be doing it without a pension.
But I find it very hard to believe that you and I and all our friends are going to work until we literally die on the job. When you really think about that, it seems crazy. Especially because hi, your health may have seriously different ideas about that plan.
This might be just as crazy, but I plan on retiring someday. Maybe I’ll be over 70, but dammit, I’m going to retire. And here’s what I’m doing now to make that happen (someday.)
I promise it’s not rocket science.
Putting money aside regularly
I save money, every month, and it’s totally automated. Every time I get paid, money just magically disappears into my Wealthsimple account.
If you’re looking to figure out how much you should be putting aside every month, the rule I go by is to aim for 10% of your salary (yes, 10% of your pre-tax income – that was a hard one for me to hear if we’re being perfectly honest.)
Factoring it into other big life decisions
There are far too many major life choices that happen in the first decade of being an adult. You choose post-secondary education, you choose your first few jobs, the city you’re going to live in, romantic partners, whether or not to have a pet, and the list just keeps going.
Seriously. It’s a lot.
But every time I’ve made a big decision, even if it wasn’t at the front of my mind, my retirement savings factored into it (which sounds like just about the most boring thing ever, again if I’m being really honest. Seriously do not know why people still invite me to parties.)
It’s not like I’m sitting there thinking about whether or not my new apartment is going to ruin my life 45 years from now, but I am calculating my budget based on the assumption that I’m always saving something for retirement. Since that’s a given, every other decision has to shift to accommodate that.
The same goes for all future decisions, including buying a house someday. If 10% of your income is locked away, with no possibility of being touched for anything other than retirement, you need to buy a house you can afford on the remaining 90%.
Be nice to your future self, and keep them in mind when you make these kinds of choices.
Not leaving it in a savings account
The best reminder of why I don’t leave my money sitting in cash anymore came via a comment from Our Next Life on my post about what you need to know before you start investing.
They oh-so-wisely reminded me that leaving your money in a savings account is a guaranteed way to lose money.
I know what you’re thinking – isn’t the stock market supposed to be the risky bet?
Think about this. Most savings accounts will pay you somewhere in the neighbourhood of 1% interest over the long term, if you disregard promotional rates that don’t last. Inflation in most years hovers around 2%.
So every year that you keep your money in a savings account, it’s losing about 1% in purchasing power. What does that really mean?
Example time!
*cue jazz hands, they make finance stuff way more fun*
Let’s say that 30 years ago, in 1986, you had $100. (I definitely didn’t, because I wasn’t alive yet, but just go with it.) Thanks to inflation, by 2016 you’d need $197.07 to buy the exact same things that $100 would have bought you back in the 80s.
If you put that $100 in a savings account earning 1% of interest for that time, you’d have… $134.78.
You lost $62.29 in buying power.
But if you had invested that money, and gotten the average market returns over the exact same 30-year period, you’d have $447.00. And yes, some of the years in between, you would have lost money. But overall, if you had kept your money in the market, you came out ahead – because you had a chance to.
That’s why I invest my money, even if it took me way too long to get started. It’s also why I’m a big fan of Wealthsimple, and buying the market as a whole – not picking stocks. Also, given the sheer number of investment books I haven’t read… I just don’t care enough to pick stocks. Luckily, I can still invest – thanks, roboadvisors!
At the end of the day, if you do these three things – put money aside regularly, factor “retire someday” into your other life choices, and invest your money – you will retire.
Yes, even though the media is all about that doom-and-gloom life when it comes to talking about retirement for millennials.
Ignore the media. Plan to take care of future you, and save your future employer the hassle of finding you keeled over at your desk. I hear the paperwork is just horrendous.
Are you planning to retire someday? Or do you think that retirement is an outdated concept or unattainable? I’d love to hear from both sides of the fence on this one! (Especially from my incredible early-retirement friends!)
PS. If you want to start investing, you can get your first $10,000 managed fo’ free with Wealthsimple.
“You lost $62.29 in buying power.”
mind=blown
Holy crap yeah. Never really thought of it this way. Also the whole “retirement happens if you like it or not, so plan for it” makes so much sense.
Thanks Kyle! (She said after confirming it wasn’t sarcasm!) I feel like not enough people talk about this so I’m glad the example was the right amount of math-y.
Very well thought out and laid out plan. It’s good to really put things in perspective and to see. I always say that even if your savings might not fully get you to your full retirement goal, it’s a way to get toward where you want to be.
Exactly! None of this gets into “how much I’ll need” or anything like that, because honestly, that can be future Des’ problem! For now, as long as I’m taking these three steps I know I’m on the right track. And thank you!
At 46, I was retired, but I could have retired even earlier.
Retirement is a number, not an age (Chris Hogan)
1. Be aligned on $ or do not marry that person
2. Save at least 50% of your income
3. Stay away from Bonds
4. Don’t care what car you drive
5. Only 35% of take home pay to housing and utilities (accept that renting us patience)
6. Do the backdoor Roth each year that you can (fund from and IRA, pay tax)
7. Make a “retirement budget” assuming you will live on 1/3 of your current income and inflate assuming prices double every 24 years.
Why to stay away from bonds? many suggest to have some money in fixed items like bonds.
With interest rates at an all time low, bond trading appears to offer primarily negative returns (unless we keep dropping into negative rates). But if you hold them until maturity, they can definitely offer stable income. The safer the bond, the lower the lending rate, which is commonly even below the rate of inflation.
The safest bonds are worth a fair bit less than what stable companies can return in dividends. A balance is always a good thing, however, to hedge against losses. The closer you are to requiring that retirement cash, the more you should hedge your bets. At a young age, you’ve got potentially 40 years to recover from a bit stock loss and should seek higher returns as such.
This is awesome! I’m still behind on the retirement budget side of things, but YES to the car thing! I was just thinking this morning on my commute (to a parking lot filled with Audis and BMWs) whether I would ever have enough money to make spending that much on a car seem reasonable. I genuinely don’t think there’s ever a dollar amount I could have that would change how truly little I care about cars – my used Yaris suits me just fine!
Plus no one wants to let the dog in the backseat of a BMW.
Great post! I hate when fellow millennials say that, because it’s completely not true (everyone retires!) and just a cop out for not saving their money now. But it’s not just millennials, I know plenty of much older people who say the same thing, which is a whole different kind of scary!
Right now my husband and I are saving about 7% of our gross income, but I plan on bumping that up once we buy a home. It’s only a difference of a few hundred bucks a month, but it’ll add on about $400,000 in retirement, which sounds pretty worth it!
I KNOW omg the older someone is when they say this to me, the more my eyes just about fall out of my head. It is definitely not just a millennial phenomenon! Either way, whether someone is 20 or 50, I just want to burn the “I’ll never retire” excuse card to the ground.
And 7% of gross sounds amazing – and I am with you on ramping up the saving when I buy a house thing! Here’s to making decisions that balance the personal finance best practice with real life (literally raising my wine glass to you, friend!)
I plan on retiring in the next 10 years (preferably more like 7). It’s definitely doable if you make it a priority. If clubbing downtown in a big city every Friday and Saturday is a priority, then retirement may be pretty far away. I believe anything is doable if you make it a priority. Want to get in shape? Make it a priority. Want to be a better S.O.? Make it a priority. Right now I fail at keeping up with some of my hobbies since work, fitness, and my S.O. are more of a priority right now. Maybe when I FIRE in the next 7-10 years, I’ll have time for it all 🙂
AHAHAHAHAHAHAHA why anyone likes clubbing is beyond me in every way. “Let’s go stand in a loud dark room and pay 10X for drinks in a sweaty crowd of strangers and yell at each other!”
*shakes fist at cloud*
But yes to all of this – it *is* all about priorities. Yours sound remarkably in line with mine right now, so I totally get it – those are big chunks of time! (That also don’t have to cost a lot, which is helpful from a budgeting perspective too, haha.)
Preach!!! It blows my mind that people assume they won’t retire, or don’t want to even try to plan and save for the option. You have no clue what’s going to happen in the future, so for the love of God sock away at least a little money. What happens if you’re no longer able to bring in money in your profession? That’s a bit of an extreme scenario, but worth a thought.
Focus on making money work for you to live the life you want instead of assuming it’s just impossible.
YES! We can plan all we want to never retire (and vice versa) right now, but might as well be prepared for either option. I am fully willing to admit defeat if I do end up never retiring and working forever – there will just be a very happy dog rescue charity named in my will that’ll benefit from my diligent savings!
But I love your point about what if you can’t work – it’s a scary thought but also something a lot more people have to deal with than we assume. It’s easy to think it won’t happen to any of us, but.
I don’t think “retirement” as a concept is outdated, but the idea of working for the same company for 30 years and then spending your days golfing is certainly a dwindling memory. Combine that with witnessing the effects the Great Recession had on their parents and likely starting off in the hole with student loans, and it makes sense that the idea of a traditional retirement seems like a pipe dream.
That’s why I think so many of us are turned on by the idea of Financial Independence, or at the very least a decent amount of “FU Money”. Having the freedom to do work that is meaningful and important to you, for passion rather than money, is what I’m sure a lot of people are looking for. They just might not realize that they don’t need X-million dollars in the bank to do so.
Totally! I love the FI community so much for being such amazing living examples of what’s possible today, and for giving “retirement” an update for the world we live in. I might not be on that path (….yet?!) but it makes it easier to get people thinking about what might be available to them, and how they can get there, and that’s so important – as evidenced every time anyone says they’ll never retire.
And ahahaha 30 year careers with pensions. Good joke, Matt 😉 (I do live in a government town though, so I do know a fair number of people who are on this path.)
I think retirement scares the hell out of people! It is a long way ahead to think, and some people are not planners in nature. But it has to be done 🙂
It can definitely get scary – especially with all of the scary media coverage! That’s why I like to focus on just what I can control, like these three steps. Until I can control the markets, that’s my plan! (Although my god if I could control the markets this wouldn’t be an issue, lol.)
Nice to know that my little comment spurred a JAZZ HANDS EXAMPLE. Totally made my day! 😀 I have to remind myself about inflationary risk every time the markets take a tumble and I start wanting to retreat to my savings account, but it always works to calm me down. 🙂
I LOVE that you put this out there. People forget that some huge percentage of folks retire NOT by choice (can’t remember the stat, but it’s big). Blame ageism, health problems, shifting job markets, whatever, but tons of us don’t really ever get to decide for ourselves, so we better be prepared to retire whether we plan to or not. Worst case, you get extra spending money in your later years (talk about being nice to future you!), which has literally zero downsize.
Exactly! There’s so much that is out of your hands on the retire-or-not decision that it’s just absolutely crazy to not at the very least take care of what IS in your hands! Because all of those things are (sadly) part of the world.
And thank you again for the inspiration! It really was a brilliant and much needed reminder. I can’t even tell you how many people today told me they had NEVER thought of it that way, so the inflation angle was hugely important to loop in!
I would love for inflation to hit 2% (what a weird thing to wish for). Sadly, most data I’ve seen for the past few years doesn’t put it near that. Nonetheless, there’s a much greater possibility of rewards in the market. Still, I–freakishly fearful Penny–absolutely understand people’s reservations about the market. It’s just been a crappy few years to decide to get serious about investing. But…stock market sale! I sometimes wonder how much more money investment companies would make if they advertised sales the way that retail stores do. I mean, everyone loves a good sale, right?! 😉
I do think you’re absolutely right that we all need to be more forward thinking, at least at certain times. I figure if 30-year-old Penny hates surprises, 75-year-old Penny is going to be really cranky about them 😉
Did you see this response article, prompted by that study that told us millennials are screwed and can expect low returns over the next 30 years?
http://awealthofcommonsense.com/2016/05/are-millennials-doomed-in-a-lower-return-environment/
It’s mind-blowingly awesome and totally reassuring me about a potentially iffy few years. Dare I say it, it even makes me a little grateful and happy to not be seeing real returns (or let’s be real, negative numbers) right now.
And omg let’s be cranky old ladies together because I plan on being VERY particular and also spoiling my dogs like nobody’s business. I’ll be that old lady.
I did! And rational me knows to keep plugging away in my investment accounts. It feels like a wing and a prayer some days 😉 If I had been in the game longer, I would totally shake this slump off like nothing. Grin and bear it, yeah? Makes posts like this one all the more relevant and important!
Ha, I like you, lol. You had me from beginning to end and you definitely bring the point home with your ’86 example. And I’m sorta jealous that you weren’t even born yet and I was already two;)
Hahaha thanks Latoya! And hey, we’re all still 80s babies around here, it’s all good!
I can’t imagine going into my 30’s or 40’s and saying yup, not going to retire, no point in even saving. That’s crazy.
I have no idea what my future will hold, and even if I plan on doing my best to retire early I could end up working until I’m 65, who knows?
But it seems ridiculous to spend my entire life up until that point not planning for retirement at all. If I’m working at 65 I want it to be a conscious choice on my part, not something I need to do to survive.
I have no false hopes about Vancouvers’ housing market and my chances buying a house here any time soon, but that doesn’t mean I won’t be saving up a down payment.
I really liked the advice on factoring it into other decisions, because I think that’s really where I’ve struggled. It’s so easy to prioritize other things, but phrasing it that way puts a different view on it.
Cool post! I definitely have heard this sentiment in social situations many times, even if I only *barely* qualify as a millennial. And I never thought about it that way before, but I think some people really do use “I’ll never retire” as a sort of excuse to not save for retirement.
I have to say that although I’m saving as much as I can for retirement, I definitely have a lot of pessimism about whether or not this will be possible to do before age 80 (unless I somehow start making a LOT more money in the near future). I’m just so far behind, and MUCH too old to have a negative net worth. So if I were to say “I’ll never retire”, it would reflect a very deep-seated fear, mixed with regret at past choices that can’t be undone. But I definitely hear you that the only thing to do is just to move forward and start investing some money for the future. As they say, the best time to start would have been yesterday, but the second best time is today (or something like that).
I was absolutely one of those people. I can’t imagine what I was thinking, but now I’ve seen the light! I may or may not be able to retire early(ish), but I should definitely be in a good place by the time traditional retirement age comes around. Now I try to spread the word to my college students to starting thinking about retirement savings from your very first job, even if it seems like a million years away.
That’s such a great point about losing buying power! It’s easy to forget about interest and inflation.
I have every faith that you will retire, no worries about that 😉 x
I plan to retire earlier than traditional retirement age. Whether that turns out to be 45 or 59, I want the freedom to live the life I want when I want.
Because of that goal, I am currently investing as much as possible. I couldn’t agree more that people need to invest in more than just a savings account. The stock market may appear to be scary if you know nothing about it but that is why it is important to educate yourself on it. Your future may literally depend on it. Great post!
Before I got into Personal Finance, I was one of those guys that said, I’ll never retire.
Now, I’m inspired by MMM, Go Curry Cracker, and Our Next Life that retirement IS there for me and I just have to plan for it. Since I started working again, I put 20% of my paychecks into retirement and my wife is putting 10%. We also maxed out our Roth IRAs for the year already!
I’m honestly too scared to look at my retirement number just yet, but I know that socking away as much as possible now is a good start! 🙂
Oh man, I SO get the retirement number fears! I go back and forth between “OMG it’s so low I have so far to go” and “Hey, you’re still young, breathe a little.” Literally about once every five minutes, haha.
It sounds like you guys are going to be absolutely fine – it’s just a process! (And PS. How is the new job?!)
I started out saving 10% but have since found the FI community and have kicked it up as high as I can! Not quite 50% yet but getting there!
Also, love the jazz hands reference. I just watched “Bring it On” the other day and remembered that’s where “spirit fingers” comes from. Great movie haha 🙂
SUCH a great movie! I am entirely convinced we would be great friends in real life. My greatest blogging sadness is that you aren’t on Twitter (or that you’re very sneaky about it if you are.)
Also, uh, yes, savings. They’re important. And honestly, 50% is a “sometimes” thing for me at the moment! Consistency is my next goal, lol.