Under 40? Don’t Worry About Retirement.

You, right after reading the title

Because I have a time machine, let’s take a trip back to the 1960s. Don’t worry, I’m not about to ask you to prevent the death of JFK or anything. If anything, you gotta go back in time and kill Hitler. Or at least steal his hat. YEAH, TOTALLY RUINED YOUR DAY, MEIN FUHRER.

The 1960s were a good decade. There was a recession in the early part of the decade, but that was over with by the time JFK was giving it to Marilyn Monroe. (Aside: Marilyn Monroe was 14 different kinds of crazy. You’d think the president would avoid this chick, no matter how hot) By the time Vietnam hit, the economy was booming. Computers and other new technologies were making the average worker more productive. People were making more, so they could consume more.

And then, the 1970s hit.

Nixon did some ill-advised price controls, and there was a worldwide oil shortage that led to some pretty bad stuff happening. Inflation was high throughout the decade, thanks to errors from a succession of central bankers who refused to hike interest rates enough to make it stop. As the older portion of you know, this problem persisted until the 1980s, when Paul Volcker finally took care of it.

The 80s were a good decade, albeit volatile. And we all remember the go-go 1990s, especially the last half of that decade when everything that ended in .com or technologies went up 40% a day.

Now, while we’re in the land of make believe, imagine you were 30 years old in 1960, and you had the internet. You figure you want to retire in the 1990s, so you find one of those retirement calculators and start inputting numbers. It spits out a result, and you worry about retirement because you’re a type A finance person who will never have enough.

After 15 years, in 1975, the economic realty was a vastly different place. Inflation was high, but interest rates weren’t really high enough to compensate. U.S. growth was tepid at best because of worldwide energy shortages. If you would have put the same numbers in a retirement calculator, results would have been vastly different. Now you’re really worrying about retirement.

And yet, I see a certain number of vigorous young go-getters who are under 30 and who are crunching retirement numbers. And on the one hand, I commend them. Good for all of them for figuring out the power of compound interest so early. Good for them for saving while they’re young, getting the heavy lifting early. And good for them for thinking about retirement while most people their age think about beer and fart apps on their phone.

But I think they’re a little misguided.

If your golden years are more than 20 years away, don’t worry about retirement. Stop with the calculators, stop with the figuring out what your retirement age should be, stop with all of it. Except for one thing.

Don’t stop with the saving.

So many things can change between now and when you retire. You could get a nice inheritance from long lost creepy uncle Bob, you could get a huge raise at work which allows you to easily triple your savings rate, or you could decide that you’re having so much fun working at 55 that, screw it, you’re not going to retire early after all. There are so many variables.

And just like the difference between the 1960s and 1970s, you have no idea what the next decade of returns is going to bring. Maybe you make some good stock picks between now and 5 years from now, which cuts down the amount of time you need to save. Or maybe the market sucks and you’re stuck saving more. Not only are there personal variables to deal with, but there are also economic ones too.

Here’s what you do – just focus on the saving. Let the rest take care of itself.

If you’re under 40, just focus on putting aside at least 10% of your income (maybe up to 20% if you haven’t saved much so far and are pushing 40), and just let the market do its thing. If you’re hellbent on getting rich, then you’ve got to bump that savings rate to at least 50% of your income.

And that’s it. Don’t worry about retiring at 50, or 55, or even 40. Screw having a retirement age, just figure out what your goals are and adjust your savings accordingly. I’d personally aim for the high side, but I’m just cautious. But unless you’re getting close to retirement age, just focus on saving. Let the rest happen naturally. Even the best laid plans can go to crap.

Tell everyone, yo!

9 thoughts on “Under 40? Don’t Worry About Retirement.

  • May 12, 2014 at 3:47 pm

    I told my older son almost the same thing (but I didn’t start with “don’t worry about retirement”). Just focus on saving. One thing I’d add is to invest sensibly. This means high exposure to stocks, low costs, and low turnover.

  • May 12, 2014 at 4:09 pm

    I completely agree with this. Back when I worked at the bank, management wanted us to use the retirement calculators during all of our RSP appointments (and it was tracked when we used/didn’t use it, of course). Most of my RSP appointments were people in their 20-somethings who were opening an account for the first time and just starting to save, because they were finally out of school and have some income now. Did I ever use the calculator? No, because I didn’t feel the need to, I thought it would just confuse the crap out of them with all the charts and numbers. Plus, the first question of the calculator is “What is your retirement age?” and most everyone’s answer when they’re 20 is “I have no idea!” Also, the calculator we had wanted you to input things like expected pension, CPP, OAS, and those figures were complete estimates. I knew that these 20-somethings were getting a much earlier start than most and so I simply just explained to them that as long as they kept in the habit of saving on a regular basis (pre-authorized contributions make that cake) and making sure to increase those contributions as their income increases over time, they would end up just fine in the end. I would, however, use a calculator that showed these 20-somethings how far their $25 or $50 or $100 a month would get them by starting now rather than at 30-40 just to show them that hey, compounding interest is awesome, and good job on starting now, but that’s about it. I would get grilled by management for never using the retirement calculator but I didn’t care.

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  • May 21, 2014 at 6:03 am

    True story, there are an incredible amount of variables. All we can do is adjust course as we go to meet our goals. I think that having a set in stone date is a little presumptuous. I always take the viewpoint with long term goals that if I am short at the end of the time line, I’m still pretty damn far, and so what if instead of retiring at 45 I retire at 47? Over analyzing and stressing out about it when its so far away and we are already doing what we can doesn’t help.

  • May 21, 2014 at 7:21 pm

    I am laughing about the man very shock about the retirement. Don’t worry dude lots of money you can get when you retired.

  • May 22, 2014 at 9:57 pm

    Good article, thanks. I’m 37 years old and have been playing around with the retirement calculators for a few years now. Realize I’m spending way too much time on this. I’m putting aside 25% of my income to my 403b, and am at a good pace to pay off my mortgage and other debts. I’ll add more later. There’s not a whole lot more I should be doing right now, just revisit my plans and budget every once in a while. And enjoy life now, damnit! Don’t focus so much on saving for retirement that I sacrifice a healthy and happy lifestyle. Thanks.

    • May 23, 2014 at 11:16 am

      Exactly. Nice work, Roberto. You’ve got this stuff figured out. It’s silly to worry about minutiae when there’s so much time to go until retirement.

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