Why Young Professionals Shouldn’t Default to Saving for Retirement
A financial planner telling a young professional “not to save for retirement” might, at least on the surface, appear to border on malpractice. The equivalent of the trainer telling his trainees, of all things, to stop training. The dietician urging clients to stop eating five servings of veggies per day. The doctor advising her patient to toss the life-saving prescription into the trash.
The idea of saving for retirement has become so ingrained in our society that for many it has become the behavioral default. The financial equivalent of eating a healthy dose of fruits and veggies. It has become the standard operating procedure for so many and, yet still, so many of us don’t do it adequately—but why?
Ultimately, saving for retirement is about a tradeoff between two people—ourselves today and ourselves tomorrow. Every dollar saved for retirement requires us to forego something today in the name of something tomorrow. The default advice has been to save for retirement and if you can, to do it early and often.
But what if our society’s default is increasingly wrong? What if retirement isn’t the ultimate goal? Or at least not in the traditional sense of work for 30 years (oftentimes regardless of happiness or fulfillment) before retiring to Florida to put one’s proverbial feet up?
Today’s post is not intended to dissuade you from having a plan to save for your future or even to save for retirement. Rather, it’s about challenging the default advice and to encourage young professionals to first ask, what do I want to save for? Not what do my parents, my economics professor, and an entire industry tell me to do, but rather what does my future-self want so badly, that I’m willing to sacrifice a few $5 lattes for it today.
A Brief History of Retirement
Retirement, as an idea, is relatively young. Not surprisingly it wasn’t until the 19th century that retirement first came to be, in large part because prior to that life expectancies were so short that most never made it to an age where physical impairments ever deterred from their ability to work.
As life expectancies rose, however, the German Chancellor, Otto Von Bismarck, first introduced the concept of retirement by forcing those age 65 and older to retire in exchange for a pension in the late 1800s. By the 1920s pensions had become increasingly prevalent across industries throughout the United States and within another decade, President Roosevelt would introduce Social Security.
The concept of retirement was (at least domestically) developed to increase productivity during the industrial revolution by replacing older and less productive workers with stronger and more motivated young workers. It was initially unpopular as many older workers wanted to continue working. So much so, that in 1951 the Corning Company assembled a roundtable to discuss how to make retirement more popular—sitting on a beach drinking Mai Tais was not yet a thing.
It evolved into a standard blueprint over the second half of the 20th century. The vision eventually became fairly simple: work for the same company for 30 years, acquire a nice size pension, then at age 65 quit cold-turkey, put one’s feet up, and mix-in an occasional play date with the grandkids.
Reinventing the Traditional View of Retirement
Retirement as a concept, however, is changing and if the retirement evolution that baby boomers are leading is any indication of what retirement might look like in 20 or 30 years for young professionals, one thing is sure to be true. It will look different.
One of the biggest changes leading to the evolution of retirement as an idea is that retirees are simply staying much healthier much longer. Retiring baby boomers are increasingly starting new businesses, launching nonprofits, and starting second careers all as a way to stay physically and mentally stimulated, provide additional financial support throughout an increasingly lengthy retirement, and allows them to unplug from the grind of their careers while still doing something meaningful.
Reimagining What to Save For
Ultimately, all of this is not to say that saving for retirement shouldn’t be on your radar as a young professional, but rather to recognize that as man-made construct, we shouldn’t simply follow the default advice blindly. And we especially shouldn’t let an outdated vision of retirement be warped into our very own, especially as the default vision of retirement itself changes rapidly.
Money, in the end, is a tool that if used effectively can help maximize our happiness by allowing us to accomplish whatever goals are most important to us both today and well into the future. Ever aspired to start a business? Maybe you love your fast paced day job, but have always had wanted to start a nonprofit at some point in life? Or just maybe you want to take a summer off and travel Europe with the family?
Whatever your goals as a young professional are, it’s important to work to create clarity around what’s most important to you and your family. And it doesn’t have to be retirement, although it very well might still be just that. Clarifying and prioritizing what’s important will allow you to weigh the tradeoffs of your various actions to ensure they are aligned with what you value most.
For example, if you identify that starting a business at some point later in life is incredibly important to you, you can begin to assess the impact of lowering your annual retirement contributions slightly and redirecting some of those dollars into an account dedicated to funding your business idea. Having the clarity to realize that a traditional retirement at 65 isn’t as important to you as the opportunity to start a business at 55, once the kids are out of the house, can be profound.
The takeaway from today’s post isn’t to not save for retirement, but instead to not let the traditional retirement be your guiding light by default. Don’t assume because the industry says “in general 10-20% of your income should be set aside for retirement” that this advice holds unequivocally true for you. If your vision for the future looks different, don’t be afraid to explore the possibilities of how to make it a reality.
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