Blog | Personal Finance

Why Saving for Retirement Isn’t Enough

You need more than retirement savings to secure your financial future.

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Summary

  • Saving alone isn’t enough to support you once you’re into retirement

  • Having your money work for you is the best way to use your savings for retirement

  • Part of preparing for your retirement is adjusting your mindset


The Baby Boomer generation is officially reaching retirement age in record numbers. But what’s terrifying, are the numbers that indicate just how little retirement savings will actually do to maintain a financially secure lifestyle.

According to Yahoo!, the estimated median retirement savings for Baby Boomers is just over $200,000. When considering the 4% rule, that yields an annual retirement income of only $8,000 per year.

Worse, 40% of Baby Boomers admit they haven’t done enough to save for retirement.

Just say no to bad advice

However, the lack of retirement savings that people have is only part of the problem. The other part is the conventional wisdom that is given under the guise of being personal financial advice.

Saving money isn’t the answer

While saving money is certainly better than doing absolutely nothing, it’s still pretty close— especially if you consider that the inflation rate eats into any interest savings you might enjoy. And let’s face it, just about anyone can save money. In fact, saving money is such a poor way to prepare for retirement, we’ve gone ahead and called it a scam (Rich Dad Scam #5: Save Money).

The reality is that saving money is not the answer to the looming retirement crisis. It may make you feel better, but it won’t fix anything. Worse yet, saving money teaches you nothing about how money actually works. It’s not smart personal finance. It’s just baseline, unoriginal thinking.

Saving for investing is the answer

If you really want security and freedom when it comes to your retirement, you’ll have to do a lot more than just put a little bit away each month into the old bank account and let it sit there.

It’s not that you shouldn’t be saving money, but that you should save for a purpose. Having it just sit in a bank account ‘till retirement gives so little return that it’s hardly worth doing. It’s nearly impossible to save enough money to have a great retirement. Rather you should save money with the intent to invest that money for greater returns.

Understanding how to invest money can get your money working for you—and can bump that rate of return from one percent (what a friend’s 4-year old son is getting on his newly minted savings account) to 10, 15, and 20 percent returns or more.

In some cases, Robert Kiyosaki has made infinite returns on his investments through the power of investing with Other People’s Money (OPM).

Shifting your mindset

As you prepare to start collecting paychecks during your retirement, you may hear advice that stifles your motivation to make money. This can include comments mentioning the cost of money-in work-related expenses, minimized social security benefits, or added taxes. You may even feel threatened by the idea that if you make too much money, you’ll slip into a higher tax bracket during retirement.

These are just some examples of the fundamental problem with most retirement advice. It presupposes that you need to be poorer in retirement, not richer. It's a shame that most people have to worry about making too much money in retirement, and it's telling of the difference between two fundamentally opposed mindsets.

The scarcity mindset

Rich Dad, Robert’s best friend’s father, would say "There are two kinds of money problems. Not enough money, and too much money. Which type of money problem do you want?"

For those with the scarcity mindset, there is never enough money. But even worse, come retirement time, too much money becomes a real problem because they are afraid of all the forces, like taxes, that take that money.

The scarcity mindset is so worried about having enough that they don't see the opportunity to make more.

The scarcity mindset lives in constant fear that cripples innovation.

The scarcity mindset keeps you poor.

The abundance mindset

Those with an abundance mindset see the world in a completely different way. They look at the problem of too much money as a good problem, not a bad one that should be avoided.

As with all problems, the problem of too much money does need a solution. But with the optimism that comes from an abundance mindset, you can find creative ways to leverage too much money, such as investing in investments or starting a business that defrays tax costs.

There is a cost to the abundance mindset-your time. Rather than spend your off hours doing things like watching TV or shopping, you spend them thinking creatively about money and pursuing interesting things that can make you money. Some turn hobbies into an income stream. Others make their business or investing a hobby. When they spend time with friends, they do so with people who think like them, often dreaming about what can be rather than complaining about what is.

Those with an abundant mindset live a fundamentally different, and likely a more rewarding, life.

How do you want to live?

We can’t give you the answer to how to fix your retirement savings woes. That's up to you. But we do know that viewing the world with a scarcity mindset will never get you there.

For many the scarcity mindset is comfortable, and changing the way you view the world is admittedly scary and hard. But, it’s worth it.

And if you know someone who is facing the possibility of having to work until they die, be a good friend - show them that there is another option.

Remember, a different tomorrow starts with a different today.

Original publish date: March 26, 2015

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