I am not an alarmest. But I think you’re in trouble. Hell, so am I. I want to talk to you about retirement. Oddly enough, we never talk about this topic. I’m usually too busy trying to fix your daily financial life. But I have a secret. The actual reason I’ve been trying to fix your financial life has been hidden for years. In fact, unless you’ve seen me speak at one of my corporate financial wellness workshops, then you have never heard or read the following from me.
Here’s the thing. We are about to talk about retirement without talking about investing. This isn’t about investing. It’s about income streams. Do you see the stool above? I would hope so. It’s not an optical illusion. It’s just a stool. To be more exact, it’s a three-legged-stool. That’s significant.
This stool represents retirement. Traditionally, when someone retires they sit on this stool. *Metaphor alert. Each leg of the stool represents a stream of passive income during retirement. Passive income is income that you don’t earn by actively working for in the moment. When your grandpop retired he had three streams of retirement income. One of them was the employer sponsored pension that his lifelong employer set up for him. He didn’t contribute any money to this pension. It was just there for him. Let’s take a quick second to examine a pension from a very basic level. It’s a pool of money that is set aside by your employer to pay you when you stop working. Again, you have left, you aren’t contributing jack-boo to the company, yet they are paying you a significant percentage of your pre-retirement earned income. Does that make sense to you? Me neither. Sure, we understand what a pension is, but why in the hell would any company do that? They wouldn’t be able to sustain it as people get older. Paging GM. GM, you have a call on line one.
The second stream of income is social security retirement income. I’m 34 years old. I know math. There is a better chance that I wake up tomorrow with a monkey riding a unicorn tattoo in the small of my back than getting social security by the time I turn 67. The social security system is insolvent. The contributions I’m making now to the social security system are going to pay my grandpop. Don’t get me wrong, I love him, but I’d rather that money be set aside for my retirement. It is virtually impossible for the social security system to work properly 33 years from now. I’d start telling you how social security is a Ponzi scheme, but I don’t want the wacky email that comes with this true, but hard to read assertion.
The third stream of income, represented by the third leg of the stool, is what you do on your own. It’s your savings, your investments, and your life savings. You see, your grandpop has three, count them, three streams of retirement income. You will have only one. This is EXACTLY why all my budgeting nonsense matters. Your only earthly chance to retire is completely dependent on YOU. It’s not dependent on your government. It’s not dependent on your employer. It’s you. Just you. I don’t gripe at you about budgeting because I’m the world’s biggest buzzkill. I gripe at you because I know the reality of your retirement.
To make things worse, peep this: if you work from age 20 to age 60, then you will have worked 40 years to fund 80 years worth of living. If you are reasonably young, then there’s a decent chance that you will live to be 100 years old. That would mean that you will only make money for 40 years of your 1oo year life. The first twenty years were completely irrelevant in terms of income. Your last 80 years must be funded by your 40 years of work. If you can barely afford your life now, then how in the hell are you going to afford 80 years worth of living? Yeah, I know.
Sorry to kick you in the groin on a Friday, but this is reality. My financial curriculum is meant to help you retire. We certainly don’t talk about investing, but we talk about freeing up your income so you may save for your future. Keep coming back, and I’ll teach you everything you need to know to free up the income to save for your future. Happy Friday.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.