Skip to main content

Stop Saving for Retirement

You aren't smarter than the market. It really is that simple.

No matter how often the financial services industry repeats the message, it is still a lie. Young people should not be saving for retirement. You have an entire life to live before worrying about what you will do when you have had bypass surgery and no longer have the energy to even go to the grocery store. While the financial services industry needs you, you don't need them.

That doesn't mean you shouldn't be saving money. You should be saving for your wedding and honeymoon, to buy a house, to send your kids to college, to take that dream vacation or to buy a new IPOD. Of course, you can also just borrow money to do those things and pay it off later. For most young people that is more realistic and, frankly, a better idea. You are likely to earn more as you get older and it will be easier to pay off the debt you took on than to save the money now to buy stuff.

Of course, what you buy matters. A house is a pretty good investment. It gives you a place to stay and it will likely go up in value along with all the other houses keeping your housing costs affordable. By some measures your wedding is a good investment assuming it is a once-in-a-life experience. Your college education? A great investment that will more than pay for itself. The latest new Ipod? Well no, because you can almost guarantee you will "need" to buy a new one in six months if you want the latest technology. When you consider credit purchases, think about how long the item you buy might last. The longer it will last, the more sense it makes to buy it on credit. If you are using credit to afford groceries or takeout food, then you need to create a new household budget or find another job.

I have a vacuum cleaner I bought on credit almost 30 years ago that still cleans just fine. I have a cast iron skillet that I still use, bought on credit when I was out on my own for the first time. When I bought it, it was a week's food budget. Today I can spend enough on groceries for a single meal to buy a new one. And that is the fundamental point. As you get older, you will have more money and you will still be getting lasting benefits from the purchases you made on credit when you were younger. Even the money I spent wining and dining my wife is still paying off.

So yes, you will be much more comfortable at 70 if you start saving your money now for retirement. And if you measure your success by how much your estate will be worth, then go for it. But for most of us, money is a means to an end, not an end in itself. You are going to earn a lot of money over your lifetime - spend some of it now to make that lifetime more pleasant, interesting and valuable.

And if you really want a more comfortable retirement, brush your teeth and floss every day.

Comments

Anonymous said…
I agree with you. Too many people start saving in their 401k - only to put everything else on their credit cards. They would be much better off if they just lived on their income and saved money in their bank for emergencies. Forget retirement until you are 50 and have paid for everything else and put the kids through college.

Popular posts from this blog

Self-Directed Real Estate IRA's the New Scam?

You aren't smarter than the market. It really is that simple. You know the marketing folks have been out talking when the New York Times does a fluff story on some new way to make more money with your investments. So watch out for the new scam promoted by the same media advisers who told you a few years ago to buy the most expensive house a lender would finance. Paul Sullivan story is about people'e successful investment of their retirement money in real estate using a self-directed IRA. He provides us with several "success stories".  Of course they are all recent converters to this idea and, not surprising, all but one of the people whose story Sullivan tells are also in real estate sales. The problem isn't really Paul Sullivan. Its that there is no one who makes money by digging out the horror stories from people who invested their retirement funds in real estate at the height of the housing bubble. There aren't any public relations firms devoted to de

The Stock Market hasn't gone up, the Value of the Dollar has Just Gone Down.

You aren't smarter than the market. It really is that simple. The New York Times had an article about the stock market's recent gains. The story noted that while the market had gone up 11% since the election, the dollar had dropped 10% against a basket of foreign currencies during that same period. They described this as "almost a mirror image." Unfortunately it is exactly a mirror image for people who hold those foreign currencies. Lets say they paid a $100 for a share of stock the day of the election and they exchanged 100 units of their own currency for that $100. Now if they sell that stock they will get $111 dollars, but when they exchange that $111 dollars, they will get back 100 units of their own currency. They have earned nothing, in their own local currency's terms the price hasn't changed. In a world investment market, the price of stock is set by what people around the world are willing to pay for it. Most people are still paying the same pr

Who is to blame for this mess?

There seems to be a lot of discussion to who is to blame for the financial crisis. But an awful lot of the media coverage is highly misleading. Here is synopis: 1) The meltdown in the financial market had little to do with people getting mortgages they couldn't afford. The collapse of the mortgage backed CDO's was caused by the collapse in the value of the houses which provided the collateral. It turned the mortgages behind the "collateralized debt obligations" (CDO's) into mostly un-collateralized debts. The result was that they went from AAA rated bonds to junk. 2)So what caused the housing bubble and collapse? Many people blame the fed, but don't have the story right. The fed did play a role. By keeping interest rates on Treasury Bonds low, they provided a market for alternative bonds that would pay a greater return. But the major cause of the housing bubble was the creativity of the investment banks. These are not the retail banks that make home mortgages