I just read what is without a doubt the most thought-provoking thing I’ve encountered in a good while: Chapter 4 to Stephen Pollan’s Die Broke. The chapter is titled “Don’t Retire.”
Now, I’ve read that piece of advice several times before. Many people make the case that if you’re doing work you love, there’s no need to plan on retiring. And that makes sense to me.
But that’s not what Pollan is saying.
He’s saying to give up the traditional idea of retirement because it’s a lost cause. Literally. He believes that the Baby Boom generation and those after it have roughly zero chance of retiring in the way that our society has come to imagine (that is, retire at age 65 then play golf in some nice sunny community in Florida until the day you die).
The history of retirement
Pollan explains that the concept of retirement didn’t even arise until the Great Depression. As part of the New Deal, Social Security was created. The goal: Pay the older workers to leave the workforce in order to make room for younger workers. Of course, back when the age for Social Security benefits was set at 65 years, the average life expectancy was only 62 years. In other words, the first generation to receive Social Security enjoyed, on average, very short retirements.
It was the second generation to retire (the Baby Boomers’ parents) that actually created the spend-the-rest-of-your-life-traveling-and-playing-golf image of retirement. However, Pollan argues that their ability to retire was simply the result of a freak coincidence of economic forces:
- They had absolutely no doubt as to the solvency of the Social Security system.
- Many had been able to accumulate wealth through their entire working years due to never having had giant student loans to pay off. (The GI bill had covered college for them.)
- More than half of them had pensions.
- As they were retiring and selling their homes to move southward, they were able to make out like bandits due to the spike in demand created by the Baby Boom generation becoming the right age to start buying houses.
Is retirement impossible?
Pollan argues that none of those things will be the case for future generations. To make matters worse (in terms of being able to retire), every generation is likely to have a longer life expectancy than the generation before it.
Combine those facts with the reality that most investors:
- Invest far too little,
- Invest far too conservatively, and
- Ruin their returns by bailing out of the market after declines…
…and you get a bleak picture indeed.
But look at the bright side!
Fortunately, giving up the idea of retirement as the ultimate financial goal can be surprisingly liberating.
A few thoughts:
- When retirement was created as a goal, older workers were less productive than younger workers. (A huge portion of the work being done was still manual labor at that point.) This simply isn’t the case today.
- It frees you from the necessity of having saved X dollars by age Y. You’re no longer in a race against the clock. What a nice feeling! (Of course, that doesn’t mean we wouldn’t need to save & invest at all. It’s very likely that even if a person doesn’t retire completely, his/her income would still drop significantly starting around age 60, so having investments to provide income is still necessary.)
- If you’re planning on working forever (or close to it), disability insurance becomes extremely important.
- Doing work that you truly enjoy becomes that much more essential.
What do you think?
Is retirement (in the traditional sense) an attainable goal for most people? Should we even be striving for it in the first place?