Caution, no freedom ahead

Are You Ready for a Lifetime of Work?

The disappearing reality of retirement

When I was growing up, there was a common narrative for most Americans. You would go to a good school, major in an area where you wanted to build your career, get a good job at a reputable company, work your way up the corporate ladder, and retire on a nice pension in your sixties.

For the most part, this was the stable reality of the majority of Americans. There was an unspoken contract between corporations and their employees. You spend your life working hard for us and we will take care of you in retirement. It was the norm to spend twenty or thirty years with a company and uncommon to move around.

Where retirement began to break down

All this changed when Nixon took the dollar off the gold system in 1971. This was the beginning of the end of the economic stability of the American family. Since then, we’ve had three of the worst recessions since the Great Depression, continual devaluation of the US dollar, wild swings in interest rates and unemployment rates, and the collapse of the pension system.

As a counteract to growing instability, the Revenue Act of 1978 was passed, allowing employees to save money tax deferred for retirement. Then in 1981, it became legal for paycheck deductions for 401(k) plans. By 1983, nearly half of all major corporations had switched or were considering to offer 401(k) over traditional pension systems. Today, a pension is a thing of the past.

When Nixon took the dollar off the gold standard, he did so with the intention of creating, “a new prosperity without war.” Unfortunately, since that time we’ve instead seen continued war, stagnant growth, a rapid rise of income disparity, and a looming retirement crisis.

You’ll work until you die—and you’ll like it?

As I’ve written before, a shocking percentage of Americans live in a financial reality where retirement isn’t even a remote possibility. In fact, in America, the median savings of a retirement-age family is a pitiful $12,000.

Now, one so-called financial expert, Ric Edelman, is proclaiming the notion of retirement to be dead. “The notion that you’re born, go to school, get a job, retire, die. That’s gone. You’re not going to do that anymore,” writes Edelman in his new book, “The Truth About Your Future: The Money Guide You Need Now, Later, and Much Later.”

According to Edelman, life expectancy is expected to rise to 110 or even 120, and it’s impossible to retire at 65 and fund yourself for that many years. Despite the fact that by 2030, the average life expectancy of Americans is 83.3 for women and 79.5 for men—the lowest among rich nations—Edelman’s argument for no retirement is interesting and novel. According to him, you will work practically until you die, and you’ll like it.

You’re going to want to work for two reasons. Number one: you’re going to be healthy enough to do it. You’re going to be as healthy at age 100 as you are at age 40 or 50, and that means you’re going to want to remain viable and a participant in the economy and in the community to be a valued member of the community.

Second, it’s going to be easier than ever to make money thanks to the shared economy, the gig economy, the notion of part-time work, working through the internet. It’s going to be easier than ever to earn a living. You’re not going to have to work 40 or 50 hours a week, and you’re not going to have to make 100 or 200 grand a year to do it. You’ll be able to supplement your income, 20, $30,000, $40,000 a year working on a part-time basis doing whatever you feel like doing. It’s going to be easy to make money, and that means instead of waiting until you’re old to retire you’re going to be able to retire early and often.

Flawed logic

Edelman makes two big assumptions for this argument.

First, he assumes that the average worker will make enough to cover health costs. But according to MarketWatch, “Starting in your 70s, your healthcare costs will rise 30% on average, reaching $48,400 (with $8,100 in prescription costs on top of that). If you make it to 80, your health insurance costs end up being 57% higher, and in your 90s you might need assisted living, which comes in at a whopping $89,000.”

Second, he assumes that the gig economy won’t be subsumed by the automation economy. I live here in Arizona, and everywhere you look, you can see Google and Uber’s self-driving cars. It’s not a stretch to assume that in the near future there will be no need for Uber drivers, and I’m sure that other “gigs” will follow suit. As I wrote in my article, “Why A Secure Financial Future Will Require Entrepreneurial Skills”:

Most people would rather not focus on these unpleasant facts. And if I were a betting man, I’d wager that most employees, if polled, would say they do not believe that robots could do their jobs. But they’d be wrong. According to an article in Wired, “Oxford University researchers have estimated that 47 percent of U.S. jobs could be automated within the next two decades.”

In a world where businesses are actively developing technology to automate most jobs, banking your retirement on your ability to stay healthy and supplement your income through the gig economy is about as risky as it can get.

So, what’s the better alternative?

Back to Rich Dad retirement basics

In a world where you could potentially be living much longer, it’s vital that instead of spending your entire life working for money, you must instead have your money work for you your entire life.

This means moving from the left side of the CASHFLOW Quadrant, the employee and self-employed side, to the right side, the business and investor side.

This is one of the most fundamental concepts of the Rich Dad philosophy on money. By building businesses or investing in assets that provide passive cash flow month in and month out, you provide the security you need to have a robust retirement without having to rely on side gigs like Edelman prescribes.

The good news is that having your money work for you allows you to still pursue many different passions and hobbies (and maybe even get paid for them), but in a way, that allows you to be financially secure and not dependent on those activities to keep you financially afloat.

So, instead of following Edelman’s advice: “So you’ll go to school, you’ll get a job, and then you’ll take a couple of years off, go back to school, and emerge with a totally new career,” my advice to you is to instead invest in your financial education so you can make the right investments to have a happy and healthy retirement. It may not be novel advice, but it’s the right advice.

Original publish date: August 29, 2017