Stop Making Excuses: Reaching Retirement is Largely a Choice
I used to view retirement as something that happens to people. My grandparent's generation taught us if you put your head down and work for 30 years you'll end up with a pension to live out your golden years. Unfortunately this isn't the case anymore.
What about the 259 million Americans who fear they can never retire? According to an Economic Policy Institute report, a whopping 80% of Americans have less than $5,000 to their name. Now, we are not on level playing fields when it comes to retirement, or even the ability to save week-to-week. For many though, it boils down to the choices we make versus our obligations.
I try not to focus too much on the nay-sayers, but I do listen long enough to notice a trend among the two camps. There are those who just make poor financial choices across the board. These are the folks who ignore basic laws of nature by practicing under the assumption they can spend more than they earn. They neglect to do the simple math or look in a mirror to evaluate their irresponsible consumption. They could all benefit from Dave Ramsey's slew of financial self-help books.
Then there are those who are more financially savvy and may even explore ways to reach FI, but they feel weighed down by a mortgage, kids, taxes, and other adult choices and obligations. They argue FI has more to do with co-dwelling relationships than consumption habits. There is some truth to this, and here's why.
This post is directed at those whose financial stress is self-inflicted. Poor spending habits and a lack of financial literacy are to blame. Some people use their out-of-control spending as an excuse, citing choices they have made as opposed to obligations. Excuses abound about why they can't possibly retire early. The two most popular why-I-can't-retire camps sound alarms with two distinctive sounds.
"But your situation is so different than mine. I could never retire early!"
Welcome DINKS! You, those with the Dual-Income-No-Kids lifestyle, have chosen to lead a life full of earning potential, resource efficiency, and domestic simplicity. In your yearbook of life, you earn the superlative title, "most like to retire by 40." Sure, DINKs have a clear advantage in early retirement, but there is usually a decade for most people of Singledom or DINKdom prior to starting a family, which offers a substantial opportunity for a head start towards saving. For those who choose to have two kids by age 30 and haven't begun squirreling away a nest egg by the time Junior comes along, it's never too late.
In this post I also discuss what to do TODAY for folks with varying degrees of obligations. Early retirement (or financial independence, FI) is attainable for many people whose lifestyles differ from my own. Then there's the question:
"But what if your situation changes?! Then you surely can't retire!"
Well, change is truly the only constant, so I try to find beauty in impermanence. I'm not going to sit here and craft an articulate response to every 'what if' scenario. I do that with my high school students all day long. What's working for me now will most likely need to be shifted in the future. As a trained scientist, I love problem-solving, cerebral (and physical) agility workouts, thinking critically, and experimenting. That's why I started this blog. It's a discussion of choices we make, and how those choices can impact our future.
Before I go much further, it's important to differentiate choices from obligations.
A mortgage is a choice, and usually a good one depending on where you live.
An F-750 or any cars in the driveway are a choice.
Children are a choice, but become an obligation once you commit to caring for another life.
Taxes are an obligation, but can be navigated in more efficient ways based on where you live (another choice).
My student loans are an obligation based on a choice I made when I chose to attend college 17, knowing sometime in the distant future I would be responsible for paying back $100,000 in debt.
Surprisingly my income is a choice because I could work in a public school system and make a 30% larger paycheck. Instead I choose to live on a boarding school campus, and accept all of the tradeoffs that come with that decision.
Here are my choices I made as an adult:
I recently learned in 2017 I hit the median per capita income in the U.S. for the first time ever! To be on track with my peers holding postgraduate degrees, I would need to more than double my salary. But again, I make the choice to live on a high school campus where I earn room and board. There's a big argument for how easy it must be for me to save without the costs of rent and food, but I make the conscious decision to live a low-income, low-expense lifestyle.
Note: We make our own choices because we are adults and generally have the privilege to shape our own lives. Making choices is NEVER called adulting, as my generation has sadly coined ANY form of action other than sipping rosé and updating Snapchat. Adulting elicits both victimization and special-snowflake syndrome. It tells the world that you are worthy of praise for doing something that generations before you never though twice about, and if things get too tough you can simply withdraw back into your carefree, feather-clad delusions. It's simply called living and being a responsible human. Step one in FI is remove that ludicrous verb from your vocabulary and take yourself seriously, whether you are single, a DINK, or a family of 8. No more excuses. Now let's get to business.
A single person living alone is going to spend substantially more money than if they had a partner or roommates. Rent, utilities, food, car/transportation, all of these expenses are a solo responsibility. The simple answer? Get roommates. Cook with them. Share chores and errands. Split utilities and rent. You can still be independent, and get to enjoy the company of a responsible and friendly housemate. If you are in a position to rent your spare bedroom on AirBnB or buy a duplex, these alternatives to full-time co-dwelling. Bigger Pockets Podcast is a great place to start learning about house hacking.
In terms of financial independence, DINKS have it the best, no contest. I lived a couple of years as a DINK throwing money on adventures, a $500 blender, and outdoor gear, because we only live once, right? I quickly learned that as a DINK I should take advantage of this potentially short, sweet time in life without children.
NOW is the time to aggressively save for the future. The message: seize the day! You have the highest earning potential, lowest expenses, and freest amount of time to pursue creative and entrepreneurial ventures. You've heard this all before, but most are not approaching this situation with the right level urgency. If you are not doing these three simple steps in your early DINKdom, you're doing it wrong. Now is the time to:
1. Save 3 months of emergency funds. Shit happens. For me, this is $5,000. Everything else goes below.
2. Max out your tax-free retirement contributions, or at the very least match your employer's contributions.
3. Open a low-cost index fund. Set up a monthly auto-payment and forget it; that's what Warren Buffet is doing. Interested in learning more? Boglehead's Guide to Investing is the place to start. Vanguard founder Jack Bogle pioneered Index Funds, which economist Paul Samuelson equated to, "the invention of the wheel, the alphabet, Gutenberg printing, and wine and cheese." Boom.
Because I chose to adventure and stay on the low-income leisure class side of the spectrum in my 20’s, I missed out on the power of compounding interest. For those who started careers right out of college, your 20's are the prime time to build your financial foundation. My pay scale is fixed in the education field, so I can't necessary take big advantage of promotions, but I can piece together side work. For me, investing at least 60% of my income is going to be my golden ticket to FI. For others it might be working up the corporate ladder in combination with resourcefulness and maximum saving. For those who remain DINKS forever, or those who go from DINK to single, you will be in better financial standing than most if you take your DINKdom seriously.
Life as an adult is a series of choices and obligations. Sometimes life just happens, and we find ourselves responsible for things we didn't see coming. For many financial situations, the writing has been on the wall, and we chose not to see it. Freedom of choice is a privilege citizens of our country are blessed with everyday. Use it.