Is Retirement Planning Worth the Effort?
I recently heard someone comment that saving and planning for retirement really isn’t worth the effort. The idea here is that people who plan to sit around and read or just simply relax but are presently working very hard to build a financial nest egg probably won’t need it, as they won’t really be able to retire; they’ll get too bored.
While it’s certainly possible that a lot of people will get bored upon retirement – in fact, it’s quite common – planning for financial freedom is still a good idea. But don’t go overboard. There are some people who will work two, even three, jobs simply to save as much as possible, living extremely frugal lifestyles so that they can retire comfortably in ten years or less. Is it really worth it?
What are these people giving up in the present to work so hard for their retirement? Such “workaholics” often have problems maintaining relationships. They pass over invitations from friends and acquaintances to have fun. They tend to be somewhat limited in their outlooks on the world, even if they are well educated. Is it really worth it to have nothing in life but work for years on end? What about building relationships and living in the world as well?
While retirement planning is a good idea, and savings are certainly necessary, the pursuit of money shouldn’t be above all else. Who ever heard of someone on their death bed wishing they had spent more time in the office?
Retirement planning really should be an ongoing process that allows one to find a way to eventually have the financial freedom to choose whether to work or not, as well as have the cushion in case s/he is not capable of working. It shouldn’t be the focus of life to the exclusion of all other priorities.
Traditionally people are taught to put money away into IRAs, RSPs, mutual funds, and other similar investments. Yet, when we look at the performance of retirement portfolios over the last couple of decades, the return is abysmal. Some people have even lost a significant chunk of their savings with the latest market downturn. Unless you have a manager as bright as Warren Buffet or are as disciplined as him yourself, for most people stocks and mutual funds are not very profitable.
There is also the option of putting money into secure investments, such as GICs and high interest savings accounts. In these investments one is guaranteed to retain the initial investment value and also gets a small return that can compound over time. But the growth is small in these items.
Risk versus Reward
This is the classic argument in investing in stocks versus investing in money markets – the higher the risk, the higher the potential reward. But the potential loss is also higher, and many people do not really weigh that. Warren Buffet has stated that for most people the best investment is an index fund. This is simply because such a fund performs at the same level as the market. And over the long term the stock market has outperformed the money market. Perhaps listening to one of the world’s richest men is a good idea!
Buffet also states that his whole strategy is to invest in companies. Now most of us don’t have his knowledge on how to decide if a company really is worth buying into. And most stock brokers don’t actually do the analysis to figure that out. And mutual funds sales people wouldn’t know either (I’ve taken their training and passed it easily, so I know first hand).
One way to actually invest in business is to invest in yourself. Starting a small business is a good idea for those people who have the courage, the fortitude, and the time. A job really isn’t going to be a good way to become financially independent, unless you are in a fairly high position. A lot of real estate agents, who operate their own businesses, understand this strategy and will take their company earnings and expand in the ways they deal with real estate. Some will buy and rent properties. Some partner with other realtors to flip properties. Some will even find venture partners to develop small properties. This is called diversifying their income. And it’s always good to have more than one stream of income.
And getting more income is why there are those that will give up their time to work multiple jobs. If one has two jobs and loses one, at least there is still some income. But wouldn’t it be better to try and build a stream of income that doesn’t rely on trading time for money (at least not directly)? This is the idea of having investments that grow. And while starting a business can be very time consuming in the initial stages, if it is ran properly, it should take less time as it grows.
That is something that a lot of professionals fail to comprehend. Accountants, lawyers, doctors, while making good incomes from their business, are essentially trading their time for a salary. A smart professional will take a good portion of that salary and invest it in diversifying her income. This allows that person to work less and less as time progresses, while still maintaining an income. And the average person can do this too!
It is a matter of finding the right investment. Many people seek an easy business to start and run from their home that has minimal cash outlays. These should be checked very carefully before investing. There are a lot of home-based business schemes that promise much more than they can deliver. A better idea is to start a business that is more traditional, whether it is home-based bookkeeping, a cleaning service, moving people’s junk, or something else that you are personally already skilled at.
These micro-businesses often have very little cash outlay in the outset, and they can take as little or as much time as one desires. The more time initially put into this, the quicker such a business will grow. The risk is wasting time, more than anything else. But the rewards can be great!
As the business builds, it is simple to outsource the work. Almost any micro-business, if planned properly, can outsource the main time-consuming work. This will then give the owner more time to pursue such things as building the client base and increasing business income, or simply spending more time with family or other pleasurable activities. Eventually, if build right and planned carefully, a micro-business can be built into a fulltime occupation that brings in as much, if not more, than a regular job. But it’s not for everybody!
Building a business requires organizational skills, determination, good time management, a tolerance for some risk, and the willpower not to rush things. It is known that the two biggest killers of small business are poor management skills and finances. And usually the finances are a problem because the business is trying to be too big, too fast. No micro-business should ever have this problem, if managed properly.
Whether you are more inclined to put any savings into something extremely safe, take a little risk with stock (index funds!), or build you own, home-grown retirement plan through a business, you should decide on some way to put some money away for your future.