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Two-Sided Coin: Save for the Future or Live for Today?
This is the fourth in a series of posts called the “Two-Sided Coin,” where TSD’s Jon Gorey and Holly Johnson take opposing viewpoints on personal finance topics.
Holly: Save Now or Forever Hold Your Peace
When it comes to why people don’t save for the future, excuses abound. Some say they don’t make enough money to save, which is understandable if true. Still, others say they would rather live for today and deal with the future…..well, sometime in the future.
This lack of enthusiasm for saving cash translates directly into our attitude on saving for retirement. If you want proof, all you need to do is look at this 2015 report from Bankrate. Once you dig in, you’ll see that around half (52%) of Americans don’t own any stocks at all.
Among respondents who didn’t invest, 53% said they don’t have the money, 21% said they aren’t educated enough about the stock market, 9% said they don’t trust stockbrokers, and 7% feared investing was too risky.
While some of these people are probably planning to fund their retirement with cash savings, it’s pretty safe to say the rest are avoiding the subject altogether. Sadly, that’s a decision many may live to regret.
Feeling ‘Meh’ About Retirement
But, why are we so indifferent about planning for the future? I’ll tell you what I think: In my eyes, failing to plan is part of the “YOLO Culture” that has captured the hearts and minds of those who don’t know better.
For some reason, it’s becoming more popular to not plan for the future than to hatch a plan for success – to blame our financial failures on the government or our parents instead of taking responsibility for our own lives and stepping up. These days, it’s far easier to wait for someone to fix your problems than it is to tackle them head on. And, as always, instant gratification is a lot more fun than saving money for a rainy day.
“You only live once,” people will say, as they ignore their 401(k) and fumble through life without a plan. I get that concept, I really do. The thing is, there is a flip side to that.
What If You Live a Really Long Time?
As someone who worked in the mortuary industry for years, I admit I can see both arguments clearly. On one hand, people die early more often than one might think. Young parents meet their end in car wrecks while their children are still young. New retirees drop dead the day after their last day at work. People die of cancer, heart disease, or worse.
With so many maladies to avoid as we age, it’s easy to use them as a crutch. Since it’s entirely possible we’ll all die young, shouldn’t we live the lives we truly want? Shouldn’t we spend our money with wild abandon and pursue our passions – our dreams? Should we really worry ourselves over something as unimportant as money?
That mentality is all fine and dandy, unless you’re wrong… which you probably are. The fact is, far too many people live long and healthy lives only to run out of money while they’re still fairly “young.” For everyone person who convinces themselves they’ll die early and uses it as an excuse not to save, there is an old person struggling to make ends meet and wishing they had done things differently.
I should know, because I’ve seen it with my own eyes. I’ve worked on countless funerals where the guest of honor had nothing left to their name – funerals where adult children were forced to pay with a credit card. Funerals that turned into cremations when families realize that no one had any money to spare – including the deceased.
How Do You Want to Live Out Your Golden Years?
Not to mention the astounding number of senior citizens who live years, or even decades, in poverty. According to the National Council on Aging, 22% of married Social Security recipients and 47% of single recipients depend on Social Security for 90% or more of their income. Further, 61.3% of households headed by an adult ages 60+ had some form of debt. Among these households, the median total debt averaged out to $40,900.
Next time you find yourself “living it up” while you’re young, imagine yourself at age 65. Picture yourself subsisting on Social Security and Social Security alone. Then envision what it might feel like to cower under the weight of tens of thousands of dollars of debt in old age.
If you don’t change, that is easily where you could end up. That’s not fear-mongering at all – it’s a fact. And it is a fact that is far too easy to ignore – at least until it’s too late to make a meaningful change.
The Final Word
While I’m all for living in the moment and spending money on experiences and things that matter in our lives, the consequences for ignoring your finances and failing to save are real. If living your golden years in poverty doesn’t scare you, I don’t know what will.
So, by all means, live for today. Spend money on the things you value most, and enjoy each day as if it were your last. Have fun. Go on vacation. Enjoy your family and friends. Splurge for a few things you really, truly want.
In the meantime, save and invest as if you might live a long time. Because, chances are, you will.
Jon: There’s No Time Like the Present
When it comes to investing, everyone wants a sure thing. And in this life, right now is the only sure thing there is.
Tomorrow’s not guaranteed to anybody. For this reason, I’ve always been wary of wishing time away — even simply longing for the weekend to arrive sooner. Those tedious workdays between now and Friday afternoon are nonetheless irreplaceable hours of your finite life – so it’s worth trying to get something out of them.
I’ll be honest: The notion of buckling down and gutting through a miserable job or spartan lifestyle for several years or decades, all for the promise of a comfortable life in an uncertain future, makes me shudder.
That’s not to say I don’t believe in saving for the future; I do, and we’ll get to that in a moment. Nor am I averse to hard work – not in the least. If anything, I’m a restless workaholic: I’ve always had a side hustle or two going.
But it’s work I enjoy. I would rather work twice as long for less pay doing something I’m passionate about than slog through a job that sucks the life out of me (presumably by way of vampire spreadsheets and bloodthirsty acronyms).
Now, some of what follows is not very good financial advice, I realize. But to me, wealth isn’t really about money. Wealth is living your ideal life on a daily basis. Money can help make that happen — it can bridge the gap between your actual and ideal lives.
But what if there is no gap to begin with?
Do What You Love Every Day
In addition to doing work I loved on the side, over the years I gradually tried to nudge my real career closer toward my ideal — and by some miracle, I’m nearly there. But that means I’ve sacrificed my future in some ways. I’ve left or turned down higher-paying jobs because they’d make me miserable or rob me of time with my family, even though they would have set us up better for retirement.
That’s a right-now choice, and it’s one I’d make every time.
I have a history of making right-now choices, for better or worse. I lived above my means throughout most of my 20s, which maybe wasn’t the best idea… but boy I had a fantastic time doing it. I wasn’t living extravagantly — living in squalor is more like it. But I was traveling a lot more than I could afford to, going out with friends, and trying to catch every indie band that came through Boston.
My middling career aside, I was living something very close to my ideal life during that time — even if I couldn’t quite afford it. I knocked off a few bucket-list items that, frankly, could probably only be done in one’s early adulthood.
In a world where people’s biggest regrets usually involve not doing something, I can safely say I made the most of those prime years of my life. In fact, my only regret is that I didn’t do something even more financially irresponsible and quit my steady job to pursue music full-time.
I chose the present, and it admittedly left me with a lot of debt — but also a lot of incredible experiences. The thing is, debt is something you can pay off in the future; you may never get another chance to make the same memories.
Banking on Experiences
This may also sound like lunacy, but my favorite investment is stories, not stocks.
Study after study confirms that experiences — such as a baseball game with friends, a family vacation, or just an invigorating hike – bring us greater and more lasting happiness than possessions. While even favored and useful objects like couches or iPhones slowly deteriorate or fade into the background of our lives, experiences somehow grow more precious in our memories. “Even a bad experience becomes a good story,” writes The Atlantic’s James Hamblin.
Your stories are yours forever, and they get better with age. They live on after you die, and the government can’t tax them. No economic crisis, political upheaval, or stock market crash can take your memories away from you.
If that’s not a sound investment, I don’t know what is.
Fund Your Retirement With Useless ‘Stuff’
My secret to getting the most out of today while still hedging my bets for the future comes down to investing in experiences, not in stuff.
It’s not that I’m not saving for retirement — I’ve got the typical under-funded 401(k) and Roth IRA — I just don’t skimp on experiences. That’s the stuff of life. But I’ll happily forego a nicer car, fancy furniture, a bigger house, or high-end appliances for the sake of my retirement and the experiences I hope to have then. (Who are these people spending $5,000 or more on a refrigerator? Do they need help laundering money?)
This echoes a point that Trent is always trying to make: Saving money doesn’t have to mean living a crappy life right now. It means paying more attention to your choices and cutting out the things that don’t matter to you (or making some smart substitutions).
Don’t spend your extra money — or your free time, for that matter — on stuff that doesn’t noticeably improve your life. That’s the money you can save for retirement without it affecting your right now.
- Related: The $15 Retirement Plan
A ‘Real’ Investment for the Future and Right Now
There’s one other investment of sorts that fits well with my “right-now” philosophy, and that’s home ownership. Yes, I realize home values can plummet anytime, and they’re too high in many parts of the country. And owning a house can be a pain in one’s neck (or an albatross around it) that isn’t right for everybody.
But when push comes to shove, you can live in a home; unlike an index fund or stock portfolio, you can use and benefit from your investment right now.
If you’d be paying rent anyways, in many cases you may as well make that payment to your future self. Imagine if your workplace offered two 401(k) plans, and you were required to choose one. Under Plan A, they withhold $1,000 a month from your paycheck, and invest $900 of it on your behalf. Not great. But with Plan B, they withhold $750 a month from your paycheck… and give it all to somebody else. Crazy, right? As with the buy vs. rent decision, the only real reasons not to choose Plan A would be if you just can’t afford the extra withholding or you expect to leave in the near future.
While home values have traditionally kept pace with inflation, making home ownership a decent but unexceptional long-term prospect, the fact remains that regardless of what home values do, at the end of your mortgage, you own a house. So even if your home’s value drops and never recovers, you’ll still have a place to live.
Does that make it a good retirement investment? Well, no, not by itself. But consider: Most Americans spend up to 30% of their income on housing costs; a fifth of Americans spend more than half of their income on housing. If you own your home by the time you retire, you’ll have eliminated almost a third of your expenses. That doesn’t mean you can retire in comfort if you never saved anything, but it can certainly help you stretch any Social Security payments you’re eligible for along with your less-than-plump retirement account.
Holly imagines retiring on Social Security benefits alone as some kind of nightmare scenario. While it’s not ideal — and Social Security’s future isn’t quite guaranteed — it doesn’t have to be that scary, either.
The average Social Security retirement payout was $1,335 a month in 2015. For a retired couple who both collect benefits, that amounts to $2,670 a month, or $32,040 a year. The median household income in the U.S., meanwhile, was $53,657 in 2014. That’s a big gap. But if the couple owned their home by the time they retired, they’d only need to account for 70% of that median income, or $37,560, to achieve the same lifestyle, since their housing costs would be minimal. That’s not nearly as dire.
The truth is, though, you and I may regret not saving enough for retirement. As Holly mentioned, too many seniors are forced to scrape by in or near poverty.
That doesn’t mean you have to shortchange your life today, though. People regret not having lived their lives to the fullest — make sure you do. People also regret not having saved enough for their golden years — make sure you do.
But no one on their deathbed ever laments their decision to buy the basic refrigerator instead of the high-end one. No one wishes they’d splurged on a fancier couch 30 years ago.
So stop paying so much for stuff, and put that money toward your future experiences instead. Because with any luck, tomorrow will soon become right now.