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Dr. Kalinda Rose Stevenson
What You Really Need To Retire
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“The only real security is not insurance or money or a job, not a house and furniture paid for, or a retirement fund, and never is it another person. It is the skill and humor and courage within, the ability to build your own fires and find your own peace.”
Audrey Sutherland
Did you read the two money articles in Parade Magazine on Sunday? The first article is their annual cover story about what people earn. The second article makes the bold assertion: “What You’ll Really Need To Retire.” The point of the article is that retirement costs much more than people realize, and most people are not saving enough money.
“Most people save too little for retirement, partly because they don’t realize how much it will cost. Well, brace yourself. It’s a lot more than you think. Here’s why:
Your retirement savings must last 20-30 years. That’s how long a healthy 65-year-old is now likely to live.
The cost of living will more than double during those years, even if inflation averages a modest 3% a year.
To make sure your money lasts as long as you do, experts say, you can’t afford to withdraw more than 4% to 5% of your life savings every year, adjusted annually for the rise in the cost of living.”
Lynn Brenner
Parade Magazine
http://www.parade.com/articles/editions/2006/edition_03-12-2006/wpe_lede_story_retirement?prnt=1
After reading many such articles, I have come to the conclusion that most of the financial advice addressed to consumers is bad advice. From the perspective of conventional wisdom, the advice makes sense. The problem is that conventional wisdom is not very wise because it is based on a limited understanding of money.
So what is wrong with this article? It rounds up the usual suspects of retirement planning and lists them as reasons to be afraid that you don’t have enough money to retire:
“ Most people have not saved enough money.
“ Prices will go up and up.
“ You will probably need more for medical expenses as you age.
“ And worst of all, you might live 20-30 years after retirement at age 65 and will probably outlive your money.
The article then goes on to explain all the ways you can calculate how much money you will need, what costs will go up and what costs might go down. (It assumes that you will pay off your mortgage.) It also assumes that your own sources of money will be retirement funds, pensions, and Social Security. It even includes a handy chart telling you how much of your nest egg you can safely withdraw each year to avoid running out of money. The unexamined assumptions of the article create fear in the minds of people.
“People are very insecure. It’s a common thread. All of these people have security questions in some way, whether it’s Social Security, retirement security. People feel that gaping holes are being cut out in their safety nets.”
James Clyburn
The whole article demonstrates what I call “money limits.” I could write a book about the money limits contained in this one article. (Maybe I will!) This article will not teach anyone the single most important skill required to live those 20-30 years beyond retirement age in abundance: how to make money.
Every single one of these money fears is based on a single assumption. After you retire from your job, you won’t earn any more money. This is one of the biggest money limitations imaginable.
You must anticipate an uncertain future in which the money available to you is limited by the amount of money you amassed in your earning years. The article wants you to imagine living 20-30 years without making any new money, completely dependent upon what you earned in your working life.
“The main purpose of Social Security is to redistribute wealth, to make an increasingly large number of Americans dependent on government for their basic needs in their retirement years.”
Neal Boortz
The article also depends on another assumption, which is never stated explicitly. The related assumption is that the amount of money you have available to you in retirement also depends on the decisions of other people. Other people will decide whether or not you still have a pension, whether or not you still have Social Security payments, the amount of interest you earn on your “safe” savings accounts and CDs, and the returns on your mutual funds.
No wonder the article is based on fear. Your only security is to amass as much money as you can while you are still earning an income, and then use it very carefully before it is all gone. You really can’t depend on these other sources of additional income. In other words, you are essentially powerless to increase your wealth after you retire from your job.
There is another way to approach retirement planning based on a different assumption. The fact that you retire from a job does not mean that you retire from the capacity to make money. The fundamental difference is that you continue to make money in retirement and that you take an active role in creating new money.
Compare the idea that you must stockpile enough money to last 20-30 years with breathing. What good would it do to tell yourself that you need to store up enough oxygen to last you 20-30 years?
Or how about food? Imagine storing 20-30 years worth of food in your house, because you can’t accumulate any more. You have to be careful to use only a certain amount of the food every day, always worrying that you will use too much. When your stockpile is gone, you are doomed to go hungry.
Both examples are ridiculous. You can’t save the air to breathe later. And unless you are living in a bomb shelter somewhere, no one suggests that you need to stockpile enough food to last 20-30 years.
But when it comes to money, the conventional wisdom paradigm changes. Instead of being something that flows, money becomes fixed. And whatever you amass during your “earning years” determines how you will live the remaining years of your life, if you are actually so “unlucky” that you last 20-30 more years.
Fundamentally, it comes down to the difference between earning money and making money. It is no accident that the retirement article follows the cover story, “What People Earn.”
The retirement article simply repeats the conventional wisdom of so many articles addressed to consumers. It treats money as a commodity you can use up or save, but it doesn’t mention a single word about how you can create more money in your retirement years.
“Retirement, we understand, is great if you are busy, rich, and healthy. But then, under those circumstances, work is great too.”
William E Bill Vaughan
“Making money” is not the same as “earning money.” Making money is a skill that very few of us ever learned as wage and salary earners. When you “make money,” you increase the amount of money available by selling something at a profit, not because you get more in your pension or Social Security or from the pitiful interest that the bank might pay you on your savings or CDs.
The two articles in Parade Magazine assume a consumer mindset. Consumers “consume” money. They don’t “make” it. As a consumer, you “earn” money from wages and salaries and “earn” interest on investments, but you have not “created” more money.
The article describes a consumer’s future, when you are retired from your job. You have earned all the money you will ever earn, tucked away in some sort of “safe” investment, or you depend on a pension or Social Security. The article does absolutely nothing to suggest that a retired person might find ways to “make” more money.
We live in an entrepreneurial age. People who have businesses understand that money is not only a commodity to be earned and then used up. Money is also a product you can create.
If you have a business, you already know the difference between earning money as an employee and creating money in business. If you have always been an employee, it might take some getting used to the idea that your future is not limited by the amount of cash you have on hand and the economic decisions of former employers, banks, and governments.
“Who knows whether in retirement I shall be tempted to the last infirmity of mundane minds, which is to write a book.”
Geoffrey Fisher
There are so many ways that people retired from their jobs can create more money. They can produce products, invest in real estate, trade Forex currencies, trade in the stock market, write books, and consult, as well as a thousand other methods to make money.
The alternative to finding ways to create money is to live with the vision of your future imagined by the Parade Magazine article. It offers specific steps to retired consumers about prudent ways to save and consume money. It tells you nothing about how to make more money. If you follow this strategy, you face a future shaped by a powerless worry that you will outlive your money.
When you know the difference between making money and earning money, you won’t have to fear a future limited the amount of money you already have in savings accounts, IRAs, and pensions. And you don’t have worry about outliving your money.
It all comes down to knowing how to create money. You will either face a future of money limits or you will understand that you can continue to make money during all of those wonderful 20-30 years you live past your job.
This article was originally published March 14, 2006.
http://www.abundantlyalivenow.com/archive/AANN-2006-03-14.htm.
FREE EBOOK: Do You Know The Money-Making Secret In The Monopoly Game?
Kalinda Rose Stevenson, Ph.D.
Author of “No Money Limits For Real Estate Investors: Discover The Money-Making Secret In The Monopoly Game That Will Turn Your Money Struggles Into Money Abundance
http://www.nomoneylimits.com/
kalinda@nomoneylimits.com
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