Updated on 10.08.14

The Different Meanings of Saving for Retirement

Trent Hamm

My parents and Sarah’s parents are roughly the same age. Their retirement-age experieces are much different than each other.

My parents are both retired in the traditional sense. They have a limited fixed income made up of Social Security and some pension money. Their house and vehicles are long since paid for, and since their house is relatively small and older, insurance and property taxes are low.

Sarah’s parents are a completely different story. Her father will probably work until he can’t, partially for income reasons and partially because I think he deeply enjoys his work on many levels. Her mother had a “pseudo-retirement” but couldn’t stand it, so she returned to work. Thus, their income level is significantly higher, but their expenses are higher, too. They have nicer cars and travel regularly.

My own “retirement” plans involve a mixture of working on my own side projects and doing volunteer work. Much like my in-laws, I don’t feel happy unless I’m working on large projects. When I find myself without such large projects, I tend to drift and feel depressed.

As for Sarah, I expect her to very oriented toward volunteerism and any grandchildren we might have to take care of.

It’s pretty clear from just a simple survey of my own life that everyone has a different life plan for their 60s and 70s. Some people intend to enjoy leisure and volunteer work. Other people are wired to be productive in various ways.

Think about it for a minute. What do you plan to be doing in your 60s and 70s? Is it the same thing that you expect all the people around you to be doing?

Given how varied the plans people have for their later life are, why is it reasonable to think that everyone should plan for retirement in the exact same way?

For example, let’s say my dream is to switch to a career path as a novel writer as soon as I possibly can, living off of my investment income starting at the youngest possible age. This means that I’d be choosing to live very lean in my 40s and 50s while I get some novels published, then enjoy more income from the combination of investments and book income in my 60s and 70s.

In that scenario, traditional retirement savings would serve a relatively small role. I might want to fund a Roth IRA or something to guarantee a bit more late-in-life income if needed, but most of my saving for the future wouldn’t be in retirement investments. I would focus instead on investing outside of retirement accounts to fund my dream.

On the other hand, a person like my father-in-law, who fully intends to work until he’s unable to do so, won’t need to live for twenty five years off of his retirement accounts. Much like my earlier scenario, the “traditional” use of a retirement plan doesn’t really fit his plans. It’s worthwhile for him to have some money in his retirement savings, but does he need to save for twenty five years of retirement?

I don’t have the ultimate answer as to how the people in the two above scenarios should be saving for retirement. However, it’s pretty clear that these scenarios don’t simply follow the “save 15% for retirement each year” plans that are often simply prescribed for people.

So, what does this mean for you?

First of all, thinking about your plan for your whole life pays off. We don’t always know exactly where our life is going to lead, but I’ll say that the general idea I had for my life when I was in my early twenties is more or less coming to pass. I envisioned having children and having a career that I had creative control over.

Naturally, big unexpected things can always derail those plans. I could get sick. Something else unforeseen could happen. In the vast majority of those scenarios, though, I’m not helped by having a lot of retirement savings, though I am helped by having assets on hand.

Second, understanding how to translate those plans into a financial plan is key. This might involve the aid of a financial planner, but at the very least, it involves some significant time studying investing options and knowing in what situations they’re most useful.

Finally, and this is key, just because you’re not saving for retirement doesn’t mean you’re not saving. If you have a future, it’s valuable to spend less than you earn and save for that future. No matter what your future self will be doing, he or she will be better off if he or she has money in the bank.

Retirement savings, in the form of a 401(k) or a Roth IRA, has certain advantages. However, those advantages only really matter if the direction of your life allows you to take advantage of them. Your life is not dictated by your retirement investment plans. Your retirement investment plans, if they’re needed at all, are dictated by how you live your life.

Spend less than you earn. Use retirement plans to help you for whatever you’ve got planned for your 60s, 70s, and later. Don’t assume that’s enough, particularly if you have a plan for your future.

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  1. Steven says:

    Why wait for retirement? If there is something you think you want to be doing in 30 or 40 years, why not just incorporate it into your life today as much as possible? If volunteering is important, do it now. If you have dreams of traveling the world when you retire, why not get a start on it now while you’re young and physically capable enough to get out there without aches and pains?

    This isn’t to say we forget about planning for our retirement, but I just don’t believe that if something isn’t important enough for us to pursue today, that it’s going to be important enough once we retire. I don’t think people change all that much after they retire. They are who they are their entire lives, and what they value doesn’t magically change. The only difference is that once you retire, you have more time to do what you already enjoy. If that’s knitting, or watching TV, you’ll probably do more of that. If you valued volunteering or travel, you’ll probably do more of that.

    So, I guess what I’m saying is this: find time now to do the things you dream of in retirement. There’s no reason to put them off until the end of your life because by then you’ll wish you had more time.

  2. Sarah says:

    I don’t want to have to RELY on being able to make an income when I’m older. If I end up being able to (and enjoying) work until I’m 75, great. If I end up writing a novel that sells well, great. But if I’m about 60 and ready to be done with traditional work, I want to be able to walk away. So, I save as much as I can for retirement right now. Fortunately, I have an income that makes it possible to do that AND live a life I love right now, sacrificing things that really aren’t a big sacrifice for me. I travel now (because I love it) and everything else I love is pretty cheap.

    Maybe I’m just overly conservative, but encouraging people to consider saving a little less because they are planning nontraditional retirements seems… unnecessary.

  3. Johanna says:

    So how does all of this fit in with the “never rely on your future self for income” principle?

    I don’t really know what I’ll want my life to be like when I’m in my 60s. I like my job now, but I’ve only been doing it for five years. Maybe I’ll be just as happy with it 30 years from now as I am now, or maybe I’ll be burned out and ready to call it quits.

    I also want to plan for the possibility that I’ll be involuntarily retired – laid off in my early 60s and unable to find another job, for example.

    For both those reasons, I want to at least give myself the option of a traditional retirement. And since I’m fortunate enough to be able to save enough to (hopefully) make that happen without sacrificing anything that’s really important to me now, that’s what I’m doing.

  4. valleycat1 says:

    Not saving amply for retirement in the expectation of being able to work into your 70’s is not a good idea. Stuff happens & you could be unable to do so despite how much you want or plan to, or as Johanna said, you could change your mind.

    In our case, my spouse wants to keep working as long as possible, but I’m content to formally retire at 65. But we’re both maxing out our retirement contributions, because having that extra money gives us a lot of flexibility in how and where we accomplish that – and protects us if life doesn’t work out the way we’ve planned.

  5. jim says:

    People who plan or want to work into their 60’s or later should not forgo retirement saving. A lot of people are forced out of work due to disability or layoffs. Just cause you plan to work ‘forever’ doesn’t mean you’ll get to. So you should plan to need some retirement money.

    Plus even if you do work into your 70’s, saving in a retirement plan will still be beneficial tax wise. Whether you’re working or not, at age 70 the tax benefits of 401k or IRAs are still going to help you.
    So I wouldn’t forgo retirement accounts for an alternate investment vehicle simply cause you don’t want actual retirement.

  6. AnnJo says:

    I don’t know where Trent’s animosity toward traditional (non-Roth) IRAs comes from, that he would even refuse to mention them as a retirement savings option. As Johanna has very clearly explained several times, unless you expect substantial taxable income from other than retirement sources, you’d be well advised to have at least enough income from a traditional IRA to allow you to take full advantage of your dependency and standard or itemized deductions.

    That is a way to deduct your IRA contributions at the beginning, and still not pay taxes on the distributions after retirement. Just because Trent refuses to think about this doesn’t mean others shouldn’t.

    And second Johanna on not making assumptions about your desire and/or ability to work as you age. Health conditions may make it impossible, and as someone who very much enjoyed her profession 30+ years ago when I started, I can tell you that not everyone stays as much in love with their work after that long.

  7. Emma says:

    “As for Sarah, I expect her to very oriented toward volunteerism and any grandchildren we might have to take care of.”Wow,great expectations. I guess no playing Bingo for Sarah. Trent leaves no room for spontaneous action,, last minute decisions, chance or fate.The man in full control of his life. It is not the first time I hear about his grandchildren. His children are still in pre school and one still in diapers. G- d bless him in his plans.

  8. PawPrint says:

    I would have loved to have worked until I chose to no longer work. Unfortunately, an unexpected health condition gave me no option but to go on disability when I was 50. I would have loved to spend my retirement years caring for my grandchildren. Sadly, my only granddaughter died three years ago, and none of my 5 children want to reproduce. Life has a way of tossing obstacles in your chosen path so you better have some alternate plans.

  9. Cheryl says:

    Saving for retirement gives you options and flexibility. You can always use that money. Have alternate plans and try to hedge against the unexpected. We expected to travel the world at retirement. Instead, we adopted our grandson and embraced full-time RVing in the US.

  10. moom says:

    Retirement savings for those who’d like to continue working are largely like an emergency fund. But I agree that it is not a good idea to put all your savings into a fund that is locked up until you are 60 or has difficult access before then.

  11. jim says:

    AnnJo, He also didn’t mention Roth 401k’s or 403b’s. I think he just listed the 2 more common retirement accounts.
    I have noticed more recently Trent has been saying its a good idea to have some of your retirement in pre-tax 401k/IRA and some post-tax Roth options to hedge your tax impacts. I think he’s made that recommendation to split between Roth and pre-tax in the mailbags at least a couple times.

  12. Laurie says:

    Personally, I think everyone should be saving 15% for “retirement.” You never know what the future will hold. I know people who have children that will always be dependent and will need substantial care after their parents pass on. I know people who have had a stroke or other health issue in their early 50s and were unable to return to work.

    My father just spend 6 months doing chemotherapy and radiation at age 63. He loved his job and planned on continuing to work until 67 or possibly later. His company has held his job for him and he may end up going back to work, but it sure is nice to have a fat retirement account that makes it his option.

    I’d hate to think of being forced to look for work after having cancer when my employer decides not to hold my job for more than 12 weeks when I’m at retirement age!

  13. Johanna says:

    @jim: I don’t recall the specific phrasing Trent’s using now (and don’t feel like looking it up), but I think he’s still saying that pre-tax accounts are better if “taxes go down” and Roths are better if “taxes go up,” but since you don’t know which will happen, you should have a mix. So at least now he’s giving the right advice, albeit for the wrong reason. I haven’t yet seen him acknowledge that even if “taxes go up,” it is to your advantage to have some money in pre-tax accounts.

  14. AnnJo says:

    In the post, Trent said, “Retirement savings, in the form of a 401(k) or a Roth IRA, has certain advantages.” As phrased, this implies that only those two options are available for retirement savings. Of course, Trent is not exactly a grammatically precise writer. Anyway, I’m glad if he is at least moderating his prejudice in favor of Roths.

  15. SLCCOM says:

    PawPrint, I’m sure there are families near you with kids who need an adopted grandparent. My own parents were born to women in their 40s, which was a heck of a lot “older” than it is today, so my grandparents were infirm and more like great-grandparents. I formally adopted several grandmothers, and they were very important to me!

    I’m so sorry about your granddaughter.

  16. jim says:

    “this implies that only those two options are available”

    No it really doesn’t.

  17. AnnJo says:

    Jim, inclusio unius est exclusio alterius.

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