Saving for retirement is a dumb idea because it takes all the fun out of saving.
Saving is a great idea.
Saving buys financial freedom. We all want to be more free. So what’s not to like about the idea of saving?
What’s not to like is that planning a retirement when you are in your 20s or 30s or 40s or early 50s is boring. Who wants to be thinking about the day she grows old when she still has plenty of high-energy years left to her? Combine the idea of saving with the idea of retirement and you take all the fun out of it.
Take all the fun out of it and saving becomes one of those nice ideas that rarely inspires action in the real world. Perhaps you’ve noticed.
Saving for retirement is a dumb idea because it has a poor track record.
We earn more money than our parents or grandparents. We save less.
I wonder why.
It’s because the old money rules do not work. They sound plausible. But they do not produce good results in the real world.
My thought is that, instead of continuing to bang our heads against the wall trying to make the old rules work, we should try something different. Maybe the idea of saving for retirement is not all that it has been cracked up to be. Maybe the reason why so many of us have a hard time managing our money effectively is that the conventional money management ideas just flat-out do not make sense.
They don’t work. That much is for sure. Taking a quick look at the national saving rate tells us that much.
Saving for retirement is a dumb idea because it encourages you to think of saving as something that must be forced.
The most popular saving idea of all time is to pay yourself first, to set aside 10 percent of your pay for savings before even thinking about what you could spend it on.
That works for lots of people. Most effective savers swear by this rule.
I don’t. I think it is a fine rule for those getting started. Paying yourself first really does produce results in many cases. So I cannot entirely knock it.
I don’t like the obvious implications of the “Pay Yourself First” rule, however. The suggestion is that saving is something painful, like going to the dentist, and that only those who force the issue can expect to be able to save anything.
That’s not been my experience. I saved nothing for the many years in which I assumed that “Pay Yourself First” was the way to go. Once I began pursuing saving goals other than an old-age retirement, I fell in love with the idea of saving to build a life bigger and better and bolder than the life I had been living before doing so. I never had to force myself to save after making that discovery. I save for the same reason I spend, because I like the benefits it brings to me.
Forced saving doesn’t just place a floor on saving. It places a ceiling on it too. You’ll save more if you save because you love what it can do for you than you will if you save because you feel you must.
Fear sometimes produces quicker results than love. Love is more powerful in the long run.
Saving for retirement is a dumb idea because it encourages you to think of spending as something bad.
Saving for retirement must be forced because no one in his 20s or 30s or 40s or early 50s really cares about retirement all that much. We all want to retire someday. For just about all of us, planning our retirements is Priority Seven or Eight in a life that permits sustained attention only to Priorities One through Five or Six. Saving for retirement is a bad idea because saving for retirement is saving that never gets done.
So those saving for retirement must force themselves to save. That means that they must try to persuade themselves that spending is yucky, not fun, wasteful.
Is it?
Sometimes. Generally not. Most of the goods and services we buy in this Consumer Wonderland of ours offer a pretty darn amazing value proposition. My boys truly enjoy their Star Wars Lego sets. I truly enjoy my high-speed internet connection. My wife truly enjoys the food she pays a little extra money for at Whole Foods.
Spending is not generally wasteful. Tie the success of your saving plan to persuading yourself that it is, and you have rooted your saving plan in a lie. Not good.
Why not just acknowledge that spending is wonderful and that saving is wonderful too? That works when you are saving because you love freedom, not because you fear not being able to retire in your old age.
Saving for retirement is a dumb idea because it takes your focus off of all of the more exciting saving goals that you could be pursuing instead.
I refer to saving as making purchases at The Freedom Store. I like putting it that way because it reveals how the purpose of saving is to obtain the power to live the life you truly want to live.
Save and you can stay home with your kids when they are young. Save and you can start your own business someday. Save and you can retire early. Save and you can free yourself from worry over when you are going to see the next economic recession or the next corporate restructuring.
Saving is not a negative, the denial of spending. Saving is a positive, the purchasing of freedom.
It’s only because we save for retirement that we think of saving as a negative. Save for retirement and you are saving not for the “You” that exists today, but for the one who will be coming into existence someday one or two or three decades from today when you turn 65.
Sure, you want to take care of that guy or gal. But taking care of that guy or gal should not be the primary saving goal of the guy or gal that you are today. You should be saving for what it can do to enhance your enjoyment of life within five years. Do that consistently and there will be money to take care of the age-65 version of You when he or she arrives on the scene.
Saving for retirement is a bad idea because the reasons why this became the conventional saving goal no longer apply.
If saving for retirement is so dumb an idea, how did it ever become so popular?
In the old days, saving for retirement was an exciting idea. There was a time when an old-age retirement was a luxury. Most people stopped working only when they became too old and weak to continue. In those circumstances, saving for retirement made sense.
Today, we can do better. We can use saving to enhance our enjoyment of life in the here and now and then to build old-age retirements as well. The idea of retiring at age 65 no longer provides much of a thrill. So saving for retirement is no longer an effective saving goal.
Saving for retirement is a dumb idea because it is a risky approach to money management.
Saving carries risk.
If you deny yourself a dinner with friends, you might miss out on a great business opportunity that they would have shared with you over a relaxed dinner. Deny yourself a vacation and you might truly go berzerko at work instead of just coming close to doing so. Deny yourself good health insurance and you might die earlier than you would have had you directed more money to keeping up your health.
The idea is not always to opt for saving any more than it is always to opt for spending. The idea is to compare the benefits of saving and spending and to choose the option offering the stronger value proposition.
It’s hard to do that when the benefits of your saving effort will not appear until two or three or four decades into the future. Saving for retirement is saving blind. It increases the chances of choosing the less appealing value proposition. It’s a risky way to go about making money allocation decisions.
Saving for retirement is a dumb idea because it goes against human nature.
You meet with the person putting together your mortgage papers. She tells you that, as part of its effort to serve you better, the bank has come up with an exciting new mortgage product. You make monthly payments for 30 years, just as was always done under the old approach. But you don’t move into the house being paid for until the 30 years of payments have been completed.
How excited are you about this idea?
That’s a good indication of how excited you get thinking about the idea of saving for retirement and not getting to enjoy the benefits until 20 or 30 or 40 years into the future. A limited amount of deferred gratification is one thing. Deferring gratification for 30 years is something else altogether. That’s an approach that goes against human nature. And we wonder why the saving rate is so low?
Saving for retirement is a dumb idea because there are millions of others doing it.
When you hunger for a juicy steak, you go to a restaurant known for putting together a sizzling steak. When you hunger for Double Chocolate Decadence, you head off to a restaurant famous for its desert menu.
How often do you make reservations at a place that advertises that “There’s Food Available Here.”
Not that often, eh?
For good reason. We fall in love with particular persons, places and things. Pursue a saving goal that is of intense personal concern to you and you alone, and you will become a saving madperson. Save for the same reason for which millions of others are saving, and you will have a hard time working up the enthusiasm to do much of it.
You are a unique person. You need a unique saving goal.
Saving for retirement is a dumb idea because it confuses you in your thinking on lots of other money management topics.
Poor savers lack willpower.
Right?
Not right.
You have the willpower needed to hold a job. Otherwise, you wouldn’t be reading an article about how to save effectively. If you have the willpower needed to hold a job, how is it that you lack the willpower to save?
I didn’t save for the first 35 years of my life. Then I discovered the idea of saving for things that mattered to me and I began saving like a mad person. It wasn’t an injection of willpower that made the difference. A lack of willpower was never the problem.
Saving for retirement is an artificial way to save. Pursue that crazy saving goal and you are going to engage in all sorts of crazy behavior and you are going to come up with all sorts of crazy theories to explain the crazy behavior. Save the way you spend and you escape the craziness. Save in a way that makes sense and all of your money choices begin to make a lot more sense.
You don’t spend for retirement, do you? You spend for what spending can do for you now, in the near-term future, and in the long-term future too. That’s how you should save.
You should think about retirement, yes. It should always be a factor in your planning. Financing an old-age retirement should not be your dominant saving goal. Save to become free. Save to live. Save in your 20s and 30s and 40s and 50s for the things that it can do for you not in your 60s and your 70s and your 80s and 90s but for what it can do for you in your 20s and 30s and 40s and 50s.
Do that, and you’ll become a highly effective saver. Become a highly effective saver and guess what? You’ll have money when you need it for an old-age retirement too.