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.
That is all and good but what about Facebook being down 44%? 🙂
Thank you for reminding me why I live the way I do.
I disagree about the pensions and SSI, and I feel very passionately about this, but I will try not to write a novel.
The recent crash decimated my parents and my in-laws’ substantial investments just when they retired/were cut from their jobs for being too expensive in an economic downturn. (Illegal? Yes. Do companies do it? Absolutely.) It will take at least a decade for those investments to grow back to what they were – and they were not aggressively invested either, but were in “safe” funds. The interest rates in those funds are currently abominably low, and my boomer-relative’s investments are generating almost no interest income. A lifetime of frugality and saving was gone in a flash.
But both of them were fine, because they had pensions – one from the military, the other from the state university. Pensions = security, even during economic downturns, for people who are not in a position to change their financial position (i.e. retirees). So is Social Security – small, not something you can live on, but a guaranteed income stream that adds a bit of money that you (ideally) can bank on having. (Also – note that both of our dads paid 10% of their income into the pension fund during their working years, so it’s not something that was given to them without their own investment). Both represent an insurance – you pay into it during your working years so you can be assured of a stable income when you are no longer working, and won’t have your income inextricably linked to the health of the U.S. economy. I cannot fathom how catastrophic it would have been for ALL of us if my dad and my husband’s dad were dependent on their investments for income right now. The investments would have been bigger – the 10% towards pensions would have been in there as well – but still generating laughably low income for them right now.
The country’s shift from pensions to 401ks is understandable given the mobility of workers these days, but it also shifts risk entirely to individuals from large companies that can better manage risk and shift investments to cover them. It constitutes one third of the risk-shifting that is making us the Generation Squeezed – the other two are the cost of college (a gamble these days that the expensive degree will net you a job that makes it worth the investment), and the cost of medical care (I carry so much risk for our medical care it is unbelievable, whole percentages of our household yearly income are at risk, despite the thousands we pay in premiums).
We personally are saving for retirement because no one gives pensions anymore, nor do they contribute to 401ks much (though do they pay us the difference in salary? Absolutely not.) But what happens if our generation experiences a major downturn during our retirement, and suddenly our income streams are diminished, no longer fixed and predictable but changeable with the health of the country’s economy? My children will pay the price in having to help support us. With pensions, my children would pay the price anyway, but in predictable, easy-to-plan-for ways, and they would also later reap the benefits during their own retirements.
Some measure of stability is desirable in society, and worth us paying into the “ponzi scheme” in my estimation. I am fearful of what will happen when we start retiring in 30 years (or 40) . . .
And hence I see my future as a senior citizen Wal-Mart greeter.
Thanks for your comment, but I’m not quite sure how you disagree. It seems like we are saying similar things.