Some Thoughts on the Long Term

A few days ago, Donald left a provocative comment on my recent article How to Get Rich Quickly!. Although I think his tone is a bit aggressive, he does bring up an interesting point:

Yes this is good advice – work for 45 years, squirrel away your income the whole time, and when you are ready to die, you will be rich (*disclaimer – rich in 2011 dollars, maybe not so rich in 2043 dollars)

First of all, I have no interest in being rich. My impression of being rich is that I have enough money saved that my children will have an easy life. I have no interest in that at all.

My goal is financial independence, which means simply that if I choose to engage in activities that don’t earn an income for the rest of my life, I’ll survive financially with a standard of living roughly similar to what I have now (and I don’t live like a rich person). I might choose to earn an income at that point so I can spoil my grandchildren or sponsor a charity or fulfill some other goal, but I don’t need it to survive and I certainly have no interest in supporting my children as adults.

Of course, the core of Donald’s point is that long-term savings goals are pointless because of a perceived short life and low quality of life you would have once you reach a retirement age. Donald mentions working for 45 years and, assuming that you’d start such work at age 25, you would be working until age 70.

Here’s the thing, though. The average person at age 70 can expect to live another fifteen years on average (see Table 6 in the 2007 CDC life expectancy report for the numbers). The simple fact is that people at age 70 aren’t sitting on their deathbeds. This may have been the reality fifty or sixty years ago, but it’s not the reality now. Health care and standards of living have given people much longer healthy and productive lifespans than ever before. The majority of people at age 70 have a decade or more or productive life ahead of them and the percentage will just continue to go up as time marches on.

I don’t know about you, but my plans for when I’m seventy don’t involve me sitting down in a chair and waiting for the end. I plan on being engaged with my family and with charities and other community activities until I’m truly unable to do it any more, and the statistics indicate that, for me in my early thirties, that time is a long way into the future. Estimates on life span increases indicate that I have more than fifty years of productive life yet to live and I’ve already been in the workforce for more than a decade.

Simply put, if you are young today, saving for the future doesn’t mean saving for retirement and life’s end; it means saving for financial independence and a second career.

Now, with regards to the comment of “rich in 2011 dollars, not in 2043 dollars”: you have to go back for two decades to find a year with an inflation rate higher than 4%, and some recent years have seen microscopic inflation rates. 2008 and 2009 had extremely low inflation and, by some estimates, had deflation. This is the inflation metric you’re trying to beat and if you’re investing over the long term (40 years), a well-diversified investment with diverse stocks and other assets will annihilate these returns, giving you much better than inflation. Simply put, saving properly for a second career over the long term will handle the inflation problem.

But what about the economic bogeyman? You know, the fear of a financial apocalypse that political opportunists and media members who know how to sell fear love to trot out all the time? The only thing we have to fear is fear itself. Most of the people preaching fear have been preaching fear for several years now. All I see is a prolonged recession and a national debt that was worse in the 1940s than it is now.

The things that have worked for the long term throughout human history work now. Spend less than you earn. Invest the rest in a diversity of things because you don’t know exactly what the future holds. Invest in yourself, too, and make sure you have skills and education to handle both the needs of your life and the needs of the marketplace.

One final thing: think and plan for the long term, because the long term is longer now than it ever has been – and it’s full of more opportunity than ever as well.