8 Reasons I Don't Invest for Retirement
By Alan M. Caruba
The following is an excerpt from an article by Alan M. Caruba on the subject of retirement planning and investing.
There are a number of reasons why plans for the retirement years doesn't fit in the heads of most Americans. They don't plan for the future because they have learned not to. They are easily persuaded by the siren song of the mainstream media to believe that they can have it all now and worry about those details later. Many don't have any details worth worrying about anyway.
Young people typically don't plan and so when they decide to marry they get a house and begin incurring new debt. They are not able to calculate the total amount of money that they are going to spend during the 25 or more years of married life. They are asking to be in poverty in their retirement years.
The majority of older people have a few investments and a pile of government debt. Their parents and ancestors – with a few exceptions – have taught them that they won't need what they will have. They have been taught to be fearful of their future.
The Baby Boomers are the children of Breadwinners, the group that backed Franklin Delano Roosevelt in 1932 and were the generation that don't know how to save or how to plan.
Retirement is a dream that is unlikely to come true if you don’t start planning early. You will need to save a fair chunk of money, and the earlier you start, the easier it will be. Although most of us know this, many of us don’t have an adequate savings plan in place.
But if you really want your retirement savings plan to work, you have to do the necessary research to help you choose the right path. There are several ways to do this. Let’s start with a couple of tips that will help to make sure you’re starting your plan on the right foot.
Be a part of a retirement plan at work The first thing you should do is actually take advantage of your employer’s pension plan. A retirement plan is something you should encourage your employer to offer. And here is why. It’s free. Your employer is offering you something to help you with your retirement, and you should take it. If they’re not, just talk to your boss and encourage them to do so.
The Tax Lie
While it is true that the IRS doesn’t tax your 401k withdrawals, they will tax that money when it comes out of your IRA or if you take it in the form of a taxable distribution.
This money is taxed as ordinary income. If you’re in the 15% tax bracket and can use the contributions for post-tax savings, the money you put into your retirement account is still going to be taxed when it comes out of your accounts.
Our society is full of hypocrites. We all know them and we all are them. It comes with being human. At some point or another in your life you have probably made a hypocritical statement or at least thought a hypocritical thought. Most times we get away with it and no one ever knows. But occasionally people call us out on our inconsistencies. The world of investing is full of hypocrisy.
There are investment professionals who defend a traditional financial advisor’s fee structure (front-loaded mutual fund management fees) while pushing exchange-traded funds (ETFs) as a better way to invest. They defend actively managed mutual funds while promoting passive index investing as a better way to invest. We’ve all heard that one before. They defend the use of money managers while criticizing the fees they receive.
In the world of investing, the saying to follow is “Do as I say, not as I do.”
The unfortunate reality of the situation is it makes sense. Traditional financial advisors can get away with their hypocrisy because of the lack of transparency in the financial services industry. If you have been a bad salesman at any given time, you will fully understand the logic behind the strategy.
The Winner Is Always Wall Street
These are the things we have to start taking care of in our own lives because Wall Street already has their investor fees, their money market fees, their custodian fees, their transaction fees, their mutual fund fees, and their investment fees. They don’t need my money to pad those already sunk costs they call “expense ratios.”
It’s not the fact that I can’t find the money. It’s not the fact that I just don’t want to. It’s the fact that it’s not worth it.
Certainly, I’d much rather be doing some out of the box investing for my own savings and retirement, but it’s just not worth it for what I get in return.
I’d rather spend that money on things that matter.
I’d rather spend that money on businesses or properties that I can drive compounding interest on, thus adding to my net worth.
I’d rather not spend that money on Wall Street.
We Are Set Up to Fail
It is tragic, and a major part of the reason why our savings rate is so low. We’re not looking at the long-term effects of our attitudes and behaviors.
We are living in the moment and assuming everything will fall into place. And since we’ve never been able to take care of our own future, we presume that there will always be a program, a retirement account, or a company that provides a safety net.
We’re lying to ourselves.
It's Not Always a Good Time to Buy
Most people start investing in retirement about the time they are nearing or in their 60's. I have no issue with this but one thing I have noticed is that many of these people are so focused on getting their money in the market that they fail to do any research or pension planning.
I have friends and family all over the country and they are on an unlimited lending basis. The easiest example I can give is the amount of money most people spend on the purchase of a new or used vehicle. Why? The average car, depending on the model and year, will depreciate well over half its value in the first 5 years.
So if my parents and my friends and I knew it was going to devalue that much in that time then why would we continue to make those purchases which is why I put this as one of the reasons I don`t invest for retirement.
I Have Bigger Plans
When people look to buy investment real-estate for retirement, they often get a puzzled look from me. Frankly, I don’t believe that most people benefit from investing for retirement.
This is how I see it:
Life is a lot more than mere work, and it’s not time out there in your life. Your life is where you live and not the hours you are at work. Even if you love your job, you have friends, family, and a personal life.
In addition, it’s not just about the types of investments you can have. The more important point is how you can use these investments. It’s about living your life to the full and not just working away at the office.
I think our minds need to have something else to hold onto besides just work and earning money. I remember about four years ago when I first started thinking about how I would be doing this. I looked at the things I was doing at the office and then I tried to find time to do some of the other things I had on my to-do list. I realized that I was now living the part-time schedule I thought I would never get around to.
So Do I Not Save for the Future?
I didn’t discuss saving for your future specifically as an investing strategy. Most people can’t afford to save much in percentages of their salary, which is why the typical advice to “save more” is silly. Why save more when your inevitable raise and investment growth don’t even keep up with inflation.
My biggest problem with investing for retirement is that it’s a forced savings where it’s someone else that you entrust your money to for investing in your future.
It’s an insurance policy. You’ll get something over time, but not how much you need and not when you need it most.
However, I’m not saying that you shouldn’t do anything to save for the future.