What Will Retirement Look Like for Younger Generations?

Earlier this week, I read the thought-provoking post at Get Rich Slowly, What Is Retirement? J.D. wrote about a recent camping experience with a few buddies and shared some of their conversation on the subject of retirement. One of the friends pointed out that he already thought of J.D. as “retired,” since he left his corporate job a couple years ago and now worked on his blog full-time. While J.D. does enjoy some schedule freedom, he still “works” at his writing craft. It does make you rethink the definition of “retirement” though, doesn’t it?

a flying lesson by my camera and me on Flickr

Shifting Views on Retirement

When I was a kid, my personal view of retirement was skewed significantly by the fact my grandfather retired from the Marines at 47, my grandmother was mostly a homemaker (particularly in her later years), and my mom was a single mom working 50+ hours a week in corporate America with no retirement in sight.

As I got older, I had friends whose parents were teachers, nurses and factory workers who had dedicated most of their adult lives to a single employer and retired from their chosen occupation. It wasn’t long before I recognized that was becoming the exception.

As our economy shifts away from manufacturing (something I personally find very sad), and into service, I think people will be more likely to change jobs dozens of times in their lifetime. I’m a bit of an exception to the rule myself. I’m in my 30s, but have worked for only two employers in my adult life (with a bunch of part-time gigs at different companies before that).

How Does this Relate to Personal Finances?

With all this job-hopping, the emphasis on personal responsibility for your financial future cannot be emphasized enough. Add in the question of social security’s solvency, the disappearance of the corporate pension, and the possibility of state bankruptcies, and you can easily see we are walking a financial tightrope with no safety net.

Younger generations must be more engaged with their finances than the “set it and forget it” generations before them. It used to be acceptable to plow all your money into 401k mutual funds and company stock. Ever heard of Madoff, Enron, or those target-date retirement funds with overly-aggressive allocations for soon-to-be retirees?

Forty year-olds with five previous employers may be sitting on five different 401k plans with bad administrators cutting into their profits with costly administrative fees. Rolling all those 401ks into an IRA might make sense, but the process can be overwhelming. And there’s always the temptation to cash out when you leave an employer – something that looks appealing, but can easily cost you nearly 40% in taxes and early withdrawal penalties. Ouch!

I’m not against 401k plans, particularly those that offer a matching contribution from employers, but if I had to choose, I’d much rather invest in a Roth IRA. Roth IRAs offer more freedom in terms of investment elections, and they offer the advantage of tax-free growth on earnings (you can even withdraw your Roth IRA contributions any time, penalty-free, in a pinch). And because Roth IRAs may be opened and maintained independent of your employment status with a particular employer, they make a lot of sense for younger generations of workers likely to bounce around the employment world before needing retirement funds.

Do I Even Want to Retire?

Back to the post from J.D; is he really retired if he still works several hours a day? I don’t think so. Has J.D. chartered a course of more personal freedom, rather than being chained to a desk eight hours a day, five days a week? Absolutely.

Perhaps we should change our definition of retirement. Or, maybe we should just expand our definition of self-employed. Were it not for a need to earn additional income, I’d say a full-time writer is mostly financially independent. That is, they no longer need to work for money to cover basic life expenses.

I believe most of us will enter a stage of semi-retirement when we get a little older. We’ll live off a combination of savings and part-time earnings, and be able to afford it by getting out of credit card debt and paying off the mortgage well before exiting full-time employment. Couple that with a frugal existence, and it wouldn’t take all that much to enjoy a lifestyle of more personal freedom.

Imagine getting to travel when most people are working. Imagine spending more time with your kids and grandkids – perhaps even homeschooling them if that is something that interests you. Imagine taking up a new hobby during the day, or volunteering more of your time. It’s all achievable, but not without some sacrifice up front.

I remind my kids, and any other young person I meet, to avoid making the big financial mistakes early on. If you do, you’ll have limitless opportunities to enjoy the next few decades of your life, while your peers will be paying for their mistakes.

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