Thursday, October 05, 2006

You'll Never Retire!

The Wall Street Journal loves retirement savings stories. Half their advertisers are financial institutions of some sort, and a stream of investments comprises a significant chunk of their profits.

There are many aspects to these stories – they will take a couple in their 50’s who want to retire and attempt to come up with a “calculator” of how much it will take as a percentage of their final income and their expected lifespan (a couple of variables that no one knows). There are a lot of ways to make these calculations and the assumptions are usually pretty spurious.

Here is a better way to look at it:

YOU’LL NEVER RETIRE!

There, I said it. Retirement is a strange concept that really only took root in the 20th century after WW2. Sure, the Germans invented the concept back when Bismarck was Chancellor, but you needed unions, pension plans, and a vibrant supply of new workers to make it work, and that really only happened in the 2nd half of the 20th century in America and Western Europe. Plus, living to 65 years of age in Germany prior to the 2nd half of the 20th century (under Allied occupation) wasn’t exactly common…

Let’s talk a bit about the popular concept of retirement. You are a middle management worker or on an assembly line. You work until maybe 60 or so. Then the company that you work for pays you a significant chunk of your salary plus expensive retirement benefits for you and your spouse until you die maybe 15-20 years later.

Whoa! This is a bad deal for the company. You work for them for 20-30 years, and then they pay for you for 15-20 years more? The value of medical benefits for someone in their 50’s – 60’s prior to Medicare is at least 15,000 / year (if you can find it at all) and then at least 30,000 in pension if you want any type of lifestyle. Thus they pay 45,000 / year for 15-20 years, or maybe around $1M for your retirement? And this is ON TOP of whatever they paid you while you worked for them.

Of course, this isn’t happening anymore. The companies with heavy retiree burdens are all falling apart, from the car makers to the steel companies to the airlines. The math just doesn’t add up. Pretty much the only institutions that can afford this are the public ones (states, federal government) because they are funded by YOUR tax dollars.

If you want to save it up for yourself you will need a LOT of money. Assuming you cut your expenses down and nothing catastrophic happens, you will still need 7 figures to make “the stretch run to death”. And very, very few people are going to save up that kind of money.

So what’s to do? Do what the rich people do – don’t retire. I know for a fact that Dan From Madison’s dad is a hard working guy and he could have retired long ago. A friend’s dad whom I bought some vacation property from also has plenty of money but is working his rear end up on real estate developments and other business ventures.

Rich people OWN assets that produce money, or they keep working. I find it odd that those that COULD retire keep working, but really, that seems to be the case.

But run the numbers for yourself and then head back to the office… the rest of us are doomed.

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