The idea of saving for retirement no matter what is deeply ingrained into our culture, but it could be ruining your chance at financial success.
Some of you reading this are in a pretty good place financially. You've saved consistently for years, and you're moving closer to retirement. CONGRATULATIONS!
I hope if you're nearing retirement you're preparing to celebrate the way we've dreamed.
But... that's not everyone. It's definitely not our youngest listeners (40's and younger.)
A lot of you are living in a lot of fear and anxiety. Paycheck to paycheck, even? That's just reality for a lot of people. (Friends, trust me you're not alone in this stress.)
I recently read an article by Katie Brockmann, a writer for The Motley Fool. It was "How Do You Save For Retirement When You're Living Paycheck To Paycheck?"
first off - She's a great writer, and The Motley Fool puts out great content... but I have to disagree with this and it's something I hear older people say often. Let's dive in.
The popular Retirement Saving snowball metaphor... oh boy.
The main point of the article is that, if you contribute $60 per month toward retirement, just $15 a week, you’ll earn 7% on your money. After 35 years, that $60 a month will have turned into a $100,000.
It sounds great in theory, but I think the underlying premise here is dangerous. The premise is that if even if you can’t do anything else, make sure you're saving for retirement.
Have you heard that? Have you felt that culturally?
The pressure to save for retirement is such a growing and impactful part of our culture. But our grandparents didn't live that way. Historically our grandparents had a pension and they did not look to the future and think, “Boy, how much am I going to have to save to be okay?” Most of them had guaranteed income via pensions and Social Security that covered the majority of their needs.
In a market driven retirement, you have to save a whole lot of money and have it grow in the market. You then pull it out of the market when you get to retirement to live on. There is a very real need to save a lot of money and you need to save now, because you're going to need that money eventually.
The same week that I read this article, I read a tweet from a financial editor at NBC on Twitter who I respect and she wrote, “If you’re starting your job soon, start a retirement account now. Even if you can only save a little, starting it will help build habit and put compound interest to work.”
In other words, when you start your job, start a retirement account right away with anything you can put in there.
I was talking to another Financial Planner about this yesterday. I asked him what is the number one piece of advice you would you give a young person just starting a new job is the number one advice you give them. What do you think he said? 401(k) match is non negotiable.
But I actually said, “Man, I respect you but I totally disagree because the average newly employed person has $0 in their savings and $30 in their pocket. How are they supposed to save for retirement?"
My Argument Against 401(K)s and the cultural advice young people are hearing
Do you realize that with inflation that 35 years from now $100,000 will be closer to $35,000 today based on historic inflation numbers. That's just on top of it not being great advice.
Once you put that money in your 401(k) you can't access it for decades. This sounds good in theory, but guess what's going to happen in the next couple of weeks? Life.
Tell me one thing in your life that has gone exactly as you've planned it? I'll wait...
An emergency could happen anytime. You could have a car crash. You could get sent to the hospital. You could lose your job.
If all your money is tied up in a retirement fund, you won't have the cash to pay for these emergencies.
So what will you do? Most people will chose the option that they are "forced into" and will swipe your credit card and start paying 18 percent interest because he/she can't pay it off and it will grow and grow.
Did that set in? Are you hearing me in the back row?
I've seen the card swiping pattern develop and still be lived out by people in their 40s and 50s. I see 55 year-old clients with hundreds of thousands of dollars saved in their 401(k) and over a hundred thousand dollars in consumer debt accruing with over 15% interest. They were not making hardly any real momentum towards retirement, because they were so burdened down by this debt.
And it all could have been avoided by saving money in an emergency fund instead of a retirement account.
^^^^^^^^ THIS. IS. IMPORTANT. TO. YOUR. FUTURE.
Save First, Retire Later. a formula that works.
There’s nothing wrong with telling young people to save for the future but we've got to tell them in the right order.
Your first dollars should be used to build three months liquid into an emergency fund so you can handle life without an American Express. #ByeAMEX
Then and only then, you can start looking at long-term savings, because you've got a foundation built.
I respect all these financial advisors but I'm sick to death of “experts” telling young people to throw that money into long-term savings when they know they have not built their savings account.
Where are you right now with this? Do you have money in savings? I'm not just talking to 18 year olds, if you're 40 years old right now and you don't have an emergency fund: Stop.
Hi. Yes, you. Stop.
Stop the 401(k) contribution.
Stop paying over the minimum on your debts.
Stop everything until you can say, “I have three months of savings that I can use if anything happens.”
Okay So I stopped, But What Do I Start?
If you don't know how to build up your savings with the money you have available, I would love to be a resource to lead you in figuring out how to shift the story and make sure you have a foundation built.
You don't have to rely on American Express.
I LOVE my job and the biggest component is guiding people to build the life they dream of and it starts with some financial principles. How? We can meet together and get to know one another. This is critical not just for your future retirement but also for your financial success now.
We want to help you live a life with more and focused on your passions. And if that sounds impossible, we want you to just say hi.