Is Retirement Flawed?

A few days ago, a reader named Jerry sent me the following quote from the book The 4-Hour Workweek by Tim Ferriss and asked me my thoughts on it:

Retirement as a goal or final redemption is flawed for at least three solid reasons:

1. It is predicated on the assumption that you dislike what you are doing during the most physically capable years of your life. This is a nonstarter — nothing can justify that sacrifice.

2. Most people will never be able to retire and maintain even a hotdogs-for-dinner standard of living. Even one million is chump change in a world where traditional retirement could span 30 years and inflation lowers your purchasing power 2–4% per year. The math doesn’t work. The golden years become lower-middle-class life revisited. That’s a bittersweet ending.

3. If the math does work, it means that you are one ambitious, hardworking machine. If that’s the case, guess what? One week into retirement, you’ll be so […] bored that you’ll want to stick bicycle spokes in your eyes. You’ll probably opt to look for a new job or start another company. Kinda defeats the purpose of waiting, doesn’t it?

This quote is interesting to me for a few reasons.

One, I personally aim to retire shortly after age 50. My hope is to spend my fifties in a state that many would refer to as “retirement” where I’m basically doing things purely because I feel drawn to do them, not out of a financial motive.

Two, I have found significant value in a number of Tim Ferriss’ books and particularly his podcasts. Some of his podcast episodes have sent me down journeys of learning and self-education that have provided a ton of personal value and growth for me.

Three, he makes a pretty persuasive anti-retirement case, at least on the surface, by subtly painting a distorted picture of retirement and then claiming how messed up retirement is.

That being said, I disagree almost entirely with the case that Tim Ferriss made here. Let’s start from the top.

“It is predicated on the assumption that you dislike what you are doing during the most physically capable years of your life.” Wanting to have the financial freedom to be able to disconnect the need to earn an income from the passion for doing work that’s personally meaningful doesn’t mean that you have to hate your current job.

I’ll use myself as an example. I will probably always want to write, simply because it’s something that I enjoy doing. Will I want to write about personal finance and personal improvement for the rest of my life? Probably not, but I haven’t grown tired of it yet. Regardless, I want to have the freedom to choose to write something different if I want to without having to make hard financial choices about my own family’s future.

Retirement doesn’t mean you hate your job. It just means you want the freedom to be able to choose different paths without having to sacrifice the financial security of your life or your loved ones. It means having enough money to walk away and try something else if you want to.

“Most people will never be able to retire and maintain even a hotdogs-for-dinner standard of living.” That’s because they choose not to save for it as a meaningful goal. This does not inherently mean that retirement is bad, it just means that saving for retirement isn’t a goal into which most people choose to invest their money.

It’s like saying “Most people will never be able to achieve the level of fitness needed to climb El Capitan.” That’s true, but it’s because most people are making different choices with how to use their time and energy.

In other words, this statement isn’t an indictment of retirement, but rather an observation about how people choose to spend their money. For example, most people choose to live a paycheck to paycheck lifestyle, and that’s because most people choose other life goals rather than getting their financial life in order. That doesn’t mean that living a life where you don’t live paycheck to paycheck is inherently bad, just like living a life where you’re saving for retirement isn’t inherently bad.

“Even one million is chump change in a world where traditional retirement could span 30 years…” This just tells me that Tim is unfamiliar with the Trinity study.

The Trinity study is an informal name given to a research study done at Trinity University in the 1990s that concluded that a well-invested portfolio should allow a person to withdraw 4% of that balance each year and still have money in the bank after 30 years. If you lower that percentage even a little, to 3.5% or especially 3%, you could effectively withdraw that amount forever, even accounting for inflation.

So, let’s say you had a million dollars in a 401(k) that was appropriately invested (and this isn’t hard to do, but it’s outside the boundaries of what this article is about unless this article approaches the length of a short book). You could withdraw $35,000 per year from that account to live on and adjust it upwards each year to match inflation for the rest of your life. On top of that, you would also have your Social Security income and other benefits such as Medicare. Given that you no longer had work-related expenses like commuting and so on, you’d have a lifestyle roughly equivalent to the average American for the rest of your life. Any more than $1 million cinches you a lifestyle better than the average American for the rest of your life.

Describing one million in your 401(k) as “chump change” indicates either that the lifestyle of the average American is for “chumps” or indicates a really poor understanding of investing.

“…and inflation lowers your purchasing power 2–4% per year.” As I noted above, the Trinity study takes inflation into account. If you have a solid investment portfolio in your 401(k), you can withdraw 3.5% of the balance each year in perpetuity, and it will adjust upward with inflation.

This additional statement mostly makes me believe that Tim Ferriss has never really taken a serious look at lower-risk investment strategies as a backbone for retirement. This is in line with the other content he produces, where his investments seem to mostly center around angel investing for ideas he considers cool and his ongoing income to fund those investments comes from media products like, well, his books and podcasts.

Emotional well-being also rises with log income, but there is no further progress beyond an annual income of ~$75,000.

“The golden years become lower-middle-class life revisited. That’s a bittersweet ending.” The reality is that income above a “lower-middle-class life” – around, say, $75,000 a year or so – doesn’t actually do anything to improve one’s emotional well being. Take a look at the work of the highly respected psychologist Daniel Kahneman, who has spent much of his career studying this issue. In a well-regarded paper by him and Angus Keaton in 2010 entitled High income improves evaluation of life but not emotional well-being, the authors conclude that “[e]motional well-being also rises with log income, but there is no further progress beyond an annual income of ~$75,000.”

$75,000 isn’t very far off the average annual household income of the average American, by the way, which was a subject we talked about earlier.

The point is that more money beyond the “lower-middle-class” life that Ferriss derides here doesn’t actually bring additional happiness or fulfillment. Money simply doesn’t buy happiness.

“If the math does work, it means that you are one ambitious, hardworking machine. If that’s the case, guess what? One week into retirement, you’ll be so […] bored that you’ll want to stick bicycle spokes in your eyes.” As I sit right now, I have a list of projects that I want to work on that will take me longer than my natural life to complete. There are just tons and tons and tons of things that I want to do before my time on this earth expires.

The idea that having enough money in the bank to simply walk away from whatever employment or entrepreneurial opportunities I don’t want to do would somehow equal with being “so bored that [I will] want to stick bicycle spokes in [my] eyes” is just utterly bizarre to me.

Boredom when you retire means that there’s literally nothing else on earth that you’re interested in and passionate about doing other than your current career, and if that’s the case, then by all means you should stay in your current career until they literally shove you out the door with a gold watch in your hand.

I’m not wired like that, though. I don’t think Tim is wired like that. I don’t think most of my readers are wired like that.

I know that there are some people who feel purposeless once they retire, and I think if you’re feeling that way after retirement, you need to do everything you can to find purpose and not just idle away your days.

“You’ll probably opt to look for a new job or start another company. Kinda defeats the purpose of waiting, doesn’t it?” Why, exactly, does the freedom of retirement for an ambitious person have to go directly back to working for an organization or starting a business? To narrow one’s options to just those two things is an extreme narrowing of the possibilities that financial freedom gives to you.

Just a week ago, I was with my family camping in Mesa Verde, without electricity or internet access. A park volunteer stopped by our campsite to greet us and I found myself chatting with him a bit. He was in his late fifties and had always dreamed of being a park ranger, a dream I had when I was in high school. His life took him in a different direction, but he was able to basically retire at age 55 and took on a volunteer job at Mesa Verde, visiting campsites and telling people about the bear-related regulations of the park. That’s what he does about eight months out of the year – he walks through Mesa Verde, going to campsites and talking to campers. The other four months, he loads up his van and travels around the country, visiting his kids and seeing various things, including other national parks.

That’s not a new job. That’s not starting another company. That’s a much different dream.

My dream? I want to spend the late fall, winter, and early spring working as a volunteer in our area and writing novels and/or other books. In May or so, Sarah and I will load up our vehicle and hit the road for three or four months, visiting family and friends and just migrating across America, stopping at places for a few days or a week then moving on to somewhere new.

I don’t hate what I’m doing now; I quite enjoy it, in fact. However, having the freedom to have complete self-control over what I write about and my writing schedule would be pretty nice, as would the ability to just spend the summer migrating from place to place like that, something that’s at least somewhat difficult to do right now due to non-professional concerns.

The big issue in all of this, in my opinion, is the word “retirement.” For some, including Tim Ferriss, the word seems too imply a very specific vision of retirement, where someone just suddenly stops working at a particular age (65?) and just goes home and doesn’t do anything any more, living on just a Social Security check and living a very threadbare existence that’s probably also really boring.

That specific vision requires a number of elements that I strongly reject.

First of all, it seems to assume that a retiree has no other interests or goals aside from their career path that they just walked away from. As I noted earlier, if you’ve just walked away from and walled yourself off from your only real interest and have no capacity for developing new interests and new ways to fill your time, then, yes, you’re going to have a pretty dull life. However, as I also said earlier, I don’t think that this is true for a lot of people.

Second, it assumes that a person has basically no retirement savings other than Social Security. For many people, that’s true, but it’s not an indictment of retirement itself, but an indictment of how people don’t prepare for their own future and overvalue their present life.

The negativity toward this assumption is alluded to when Tim writes about his disdain for “lower middle class” life, but as I pointed out earlier, once you get to roughly the average American income, your happiness level doesn’t really increase. Once you have a roof over your head and food on your plate and clothes on your back and a few friends and enough financial freedom for just a bit of serendipity, more money does not add more happiness to your life. You just raise your expenses a little more and then it all becomes ordinary.

Sarah and I earn a little more than the average American household income, but we save so much that our spending is below that level, and there are a number of things we could easily cut out that wouldn’t really affect our happiness in life. I could easily be less of a hobby dilettante, for example, and cut down on my hobby spending, which is easily my least vital area of spending.

Third, it seems to assume that a person is wasting their time saving and investing for the future because they can’t even “beat” inflation. It is absolutely ludicrous to buy into the idea that a person can’t invest well enough to beat inflation. It’s easy – just put your money into a 401(k) or Roth IRA and put your money into an total stock market index fund or a target retirement fund. Boom. Done. You’re beating inflation with your money. When you decide to stop investing and start withdrawing, calculate 3% of the balance at that point and you can safely withdraw that amount each year, increasing that amount with inflation, and it should last basically forever. In fact, it will likely continue to grow, albeit at a slow rate. Boom. Done. You’re matching inflation on withdrawal.

The real issue isn’t that saving for retirement is a waste of money, but that people frequently choose to not do it in order to raise their current standard of living, not realizing that raising their current standard of living does not add to their happiness with their lives.

Here’s my alternative plan.

Aim to separate your living expenses from your work. Do that by saving for “retirement” using the usual retirement tools – a 401(k), a Roth IRA, and so forth. Along the way, consider how you’re spending money and whether or not those things you spend money on really bring you lasting happiness. (I personally think this is the big difference maker – people rarely consider whether the things they spend money on bring them lasting happiness.) If they don’t, cut those expenses out of your life or at least minimize them, and be particularly careful about any big expenses. When in doubt, wait to buy it and see if you care in a month. Along the way, put as much as you can into an emergency fund, then into getting rid of your debts, then into those “retirement” tools, aiming for a point where you can live your current life off of 3% of the balance of your savings. Treat Social Security as gravy on top.

Eventually, you reach a point where you can do whatever you want without having to worry about living expenses. Ideally, you can do this well before traditional retirement age. Don’t like your job? Quit and do something else. Want to spend a year volunteering in a national park? Go for it. Want to spend two years trying to write a great novel that might turn out to be trash? Go for it. Want to start some goofy business idea? Go for it.

Retirement isn’t flawed, but a really narrow definition of retirement is. If you decide to cut off some of the possibilities, you can certainly create a flawed result. Don’t fall into that trap.

Good luck.

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.