In 2019, one in three Americans had nothing saved for retirement. Given one of our most popular posts is How Much You Should Have Saved by Age 35 to Retire Comfortably we will assume our readers are interested in the topic of saving for a financially secure retirement. At some point you need to accept that someone is going to have to pay for that assisted living at Lakeside Village, and all of the holidays you have planned.
For context, although I often see the concepts incorrectly interchanged as synonymous, a “financially secure retirement” will not be presented today as the equivalent of retiring rich or Financial Independence / Retire Early (FIRE). Instead, Vicki Robin provides a more reasonable basis for today’s discussion of how much money is enough in her book, Your Money or Your Life:
Enough is not the minimum amount for survival; it is the exact amount that gives you fulfillment without excess. There is nothing in your life that is more valuable than your time.” – Vicki Robin
Specifically, 1 in 3 Americans (2 in 5 Millennials) have $0 saved for retirement. Yet, most of the “retirement advice” I read–and I read way too much retirement advice and personal finance articles–center on one flawed theory. It is the one income theory. The one income theory assumes we will (or want to) survive on only one income. These are usually presented as binary choices like a poorly designed multiple-choice test where you must choose from one of the following:
A. White Collar salary job
B. Blue Collar hourly job
D. Side Hustler
E. Abstract “gig economy” contractor
F. None of the Above
I’ve seen better-designed memes on Instagram. The accusation here is that we will do one (but never all) of these working options if or until we reach retirement age (62? 67? 72? death?). Unless Morgan Freeman is the narrator, I am not going to sit idly by while this dystopian reality show unfolds.
The Golden Age of One Income Fully Funding Our Retirement is Dead or Dying
Given that 50% of Baby Boomers themselves have $0 saved for retirement, maybe this dream was never true and we are all collectively waking up to what was always a nightmare? The reality is if you were not born into wealth–one of the most significant predictors of the ability to accumulate or sustain wealth in the United States if we reference things as annoying as facts and data–most Americans will need to find as high an income or as many income streams as feasibly possible to increase the likelihood they will have a remote chance of reaching financial security by or before retirement age. It’s not easy, but improbable is not impossible.
This is just my opinion, but my opinion is informed by a rarely-referenced thing I like to call math. Anyone who hasn’t reached this same conclusion must already live in or plan to retire to a low cost of living state, has accepted and self-imposed financial austerity on their household (which I respect), or is in blind denial. Although I have never heard a rich person say, “You know what? I’m making way too much money from all these multiple income streams. I should cut back. I’m too rich and don’t need any more money!”
I do frequently hear non-rich individuals actively searching for ways to make more money. A lot of people take out loans, which is fair enough as it’s a decent way to get a little short term wealth to do something special with, just avoid using a guarantor loan when possible because they can be a bit of a nightmare. Loans get a bad rap and sure, “more money, more problems,” but it’s not like the alternative–the absence of money–creates a problem-free lifestyle in our country.
Keeping true to my observations during the opening of this piece, most people focus on one-for-one tradeoffs because that’s the only option they’ve ever been taught. For instance, they will ask themselves: What one job? What one lottery ticket? What one [insert whatever you want here] circumstance will turn my life around from dire to prosperity in the next 24-hours?
Unfortunately, I do not believe there is one thing. Ok, there are a few possible one-employment options captured in this list aggregated by Financial Samurai, but as with most things, there is a tradeoff. In the majority of these single, high-income opportunities are the following barriers to entry for most individuals: the will to work your way up any one career path for 40-years to maybe reach the top; a skill set not everyone has; a schooling not everyone gets; or an education not everyone can afford (or, apparently, bribe their way into).
What Happens When One Income Isn’t Enough?
Seventy percent (7 in 10) of Americans live paycheck-to-paycheck. The status quo has failed. The argument about whether financial literacy predicates wealth or wealth comes from financial literacy is about as meaningful as arguing which came first: the chicken or the egg?
Because it is already notoriously difficult to find one secure income, I understand why it is hard for some individuals to imagine making multiple. Said in the abstract the advice that someone find two or more income streams is taken as sarcasm, not a sound suggestion. There are only 24-hours in the day and frankly, as of late, I’m washed by 9 p.m. CST on my best weekdays.
Still, I argue that in the present day, or in the very near future, few panaceas will be found in the one income theory. Our financial issues are too numerous, expenses too high, and in many circumstances, even two incomes have already proven insufficient to dam the financial tidal wave caused by just one unexpected expense for the average household.
I believe the challenge to change is further exacerbated because most of us are taught to pursue singular solutions. For instance, you go to high school to prepare, if you’re lucky, for the one selective college that deems you worthy. When you get to college, you’re [allegedly] taught work-life skills that will apply at that one job you will work for the rest of your life. This one job will [they claim?] propel you through the corporate ladder, where you will ascend into the one available CEO position. There (the narrator?) says you will find financial security.
Cool story, bro.
By a show of hands, exactly how many CEOs do you know in your immediate circle of friends? Of those CEOS, how many are financially secure and happy themselves? Please keep your hand raised if you’ve worked one job in the last 10 years, let alone if you plan to work your current job for the next ten. If you’re ever lucky enough to be the person that gets the one job of your dreams–but more likely the first job that agrees to offer you employment–you are already the exception.
If you did somehow land the job of your dreams on your first try, it is equally important to ask the following. Did it include:
- cost-of-living adjusted merits,
- salary, bonuses or stock options; or
- promotions that moved you through a career ladder like an airport auto walk, inevitably, dropping you off at your financially secure retirement door #1?
We can continue to waste our time with these personal finance debates–and we will (hey, these blogs aint gonna write themselves and I got bills to pay)–but I’m reminded of a bad healthcare proverb, “Yes mam, the surgery was a success, but the patient died.” If we define “success” without correctly prioritizing our desired final outcome, then we will always define success using the wrong order of performance measures. In other words, I don’t think people dislike FIRE as much as they dislike uncertainty. Neither FIRE, or any retirement plan on Earth will guarantee you financial nirvana that is completely free from risk. There are tough choices to make and a few personal sacrifices. Only you can decide whether financial sacrifices in the present are worth it to you and your household in the future, but these should be informed choices not wishes on a star.
Spend Less than You Earn or Earn More Than You Spend (They Say)
I have (accurately) been accused of having an abundance mindset. This is strange because I do not consider myself an optimist. I hope for the best, but on most days I am typically planning for the worst outcome. My life is guided by one large, evermore informed risk assessment.
Contrary to the one income dream we were sold as children, the most likely severance in income or salary will not result randomly from some mysterious exterior force we cannot control. It is more likely to arrive at our doorstep from the one place we were taught to trust: our employer. Yes, the one place you’re taught to rely on is also the one most likely to callously separate you from the income on which you depend.
Isn’t it ironic? Don’t you think?
I don’t watch Game of Thrones, but this seems like a great plotline: you walk into the castle you’ve loyally defended for eons only to learn your King has decided to lay you off to enrich the bottom line, shareholders, or maybe just because they don’t like your face anymore. “It’s an evil world we living in.”
Across a 40-year career, there are far too many variables outside of our control that can potentially impact, limit, or outright prevent us from saving enough money, period. This doesn’t even include saving for retirement. Anonymous corporations–run by people, we presume–question our loyalty but why continue to vest ourselves in maintaining the status quo when Millennials Face the Scariest Financial Future Since the Great Depression? We’re vested in change because maintaining your marching orders will only walk another generation off the same financial cliff we’re actively witnessing 10,000 Baby Boomers fall off today, and at this rate, they will continue to fall every day for the next decade as they all reach age 65.
Today, after an average two-income family makes its house payments, car payments, insurance payments, and childcare payments, they have less money left over, even though they have a second, full-time earner in the workplace. The two-earner married family starts out just slightly better off than the divorced woman of a generation ago.” – The Two-Income Trap: Why Middle-Class Mothers and Fathers are Going Broke.
Thank you for your generous offer. Soft pass!
Started From the Bottom, Now We Here
I have to assume that a combination of how I was raised, and of course, rap music have sharpened my spidey senses. I haven’t determined from what direction, yet, but I sense trouble is afoot.
First the rapper in me analysis: Most rappers, “start from the bottom,” and make sure to tell you about it in excruciatingly painful detail over 16 bars and 808s until they “come up.” If you are impressionable, like me, you might have already come to the same obvious realization. “If I was not born into money. I need to make a lot of money when I grow up.”
I’m rich! Now pay me and I shall lecture to you about the unimportance of money, broke persons.” – Financial Guru
Getting personal finance “experts” to admit a better way to save more money is to make more money–rather than stop drinking coffee and eating avocado toast–is personal finance blasphemy.
It is difficult to get a man (or woman) to understand something when his salary depends upon their not understanding it.” – Upton Sinclair
I’m sure one of those students that paid to get into one of those Ivy League institutions is already actively studying this for their capstone, The Rap Music Effect: An Assessment of Rappers Influence on the Bourgeoisie and Broke. Sucks to be me, but my parents don’t have Ivy League bribery money so I had to figure out life on my own. In this regard, I recently turned to J. Cole for financial clarity. He breaks it down in terms I can understand:
I want to have my cake and another cake too.
Great. We’ve successfully diagnosed the problem. The surgery was a success. How do we keep the patient alive too?
Define Your Personal Finance Savings Based on Your Age and Individually Tailored Goals
I believe the other half of the battle in knowing how to run any race is first learning how long the race will take. If you come out sprinting in a marathon, you’ll lose. If you come out jogging in a sprint, you’ll still lose.
Even though I started working at age 16, more and more my experience is the exception. If you wait until after high school to start saving, you’re likely 18 or older. If you wait until after college, you’re likely 24 or older. If you pursue graduate, doctorate, or law school, you might be in your 30s before you have enough income to cover your monthly expenses and start saving for the future. You cannot preach the same savings goals and retirement rates to these varied individuals. At best, it’s bad advice. At worst, it’s bad stupid advice.
A better approach: adjust the exact year you plan to start saving and the exact year you plan (or think) you will stop working and/or making an additional significant annual income. It’s your life. Who knows all the variables in your life better than you? Hint: Keith Sweat had a hit song of the same title, Nobody.
We’ve summarized the exact calculators, age and investment assumptions, and free tools we like here. For the purpose of today’s discussion, let’s reference the expert recommendations for retirement savings by decade assuming you started at age 20, had an average annual return of 7-percent, and want to reach $500,000 and $1,000,000, respectively. Here is an example of your monthly investment saving goals:
- Age 20: $127/mo.
- Age 25: $181/mo.
- Age 30: $260/mo.
- Age 35: $379/mo.
- Age 40: $560/mo.
- Age 45: $851/mo.
- Age 20: $253/mo.
- Age 25: $362/mo.
- Age 35: $757/mo.
- Age 45: $1,701/mo.
Here is why having more invested helps you as compound interest takes over:
- A 7% return on $100 = $7 annually
- On $1,000 = $70
- On $10,000 = $700
- On $100,000 = $7,000
- On $1,000,000 = $70,000
Have we cured all that financially ails the 1 in 3 Americans who have $0 saved? Not even close. What we have done is define their starting point in this race called life. This is slightly better than wandering the financial desert for 40-years, but it is still only a starting point.
We cannot run the race for you. We can’t make the money for you, and even when you make enough money to save, we certainly can’t force you to invest at least 10 to 20 percent if you ever want to reach financial independence, whether your retirement goal is age 30 or age 100. We can only provide the map. You are the one that has to choose to follow it. Or don’t. Doing nothing is well within your right to choose too.
Just in case you’re new here, our P&B Family already know though, you only live once, that’s the motto, YOLO:
It’s my money. If you didn’t help me make it. Don’t tell me how to spend it.
The Personal Part is the Most Important Part of Your Personal Finances
If you want different results. You need different actions. Here is a piece of advice I offer based on my own experiences with money. Although it will be you that must put the personal in personal finance, please be honest with yourself, beloved.
For me, the body is willing but the spirit is weak! I automate my financial goals because I know the most consistent financial sabotager in my life is generally the guy staring back at me in the mirror each Sunday questioning our choices over the last seven days. Ignorance of the law, and of your finances, is not a defense recognized in the court of life. Maybe you need to consult with a Certified Financial Planner (CFP)?
Related: P&B Podcast Series: Ask a CFP
Maybe you just need to stop making excuses? No one knows the truth but you. If you find yourself in the 1 in 3 with $0 saved, assuming you want to make a change, then what I would not do is continue doing nothing at all. The refusal to make a choice that is within your control is a choice, too. I rarely make guarantees, but I will end with two guarantees today:
- Zero dollars times zero dollars will always be zero no matter how many years you allow to pass before you start saving.
- The time will pass on its own whether you act in your own best financial interest or continue to chill.
If you’re sick and tired of being sick and tired and you’re ready to start down a different financial path, Start Here.
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