Common Retirement Myths

I need at least $1,000,000 in order to retire.

This whole “millionaire” concept is so old – we’re talking 1920’s top hat old. In the 1900’s it started to have real meaning because a millionaire back then could have easily gone through the ensuing recession without any concerns. $1 mill then equates to ~$23 mill now – not quite the same thing is it?

So why do you need at least a million dollars to retire? You don’t. The financial safety of your retirement and longevity of it isn’t based on the whole net worth amount. What you need to care about is the amount of income coming in. It could be from a pension, savings, 401k, rental income or business income.

Start thinking about retirement not in terms of dollars invested but the ability to generate the income you need without needing a job. You may still have to oversee a few rental companies (in person or through a management company), you may have to manage your investments, or remotely operate a business. If you can do some homesteading then you will likely pay for a large portion of your own electricity (solar panels) and provide your own food through growing vegetables/fruits.

And remember that just because you retire with a hypothetical $400,000 it doesn’t mean that you will end your retirement with that much. If invested intelligently your $400k will grow every year… in this economy $400k invested conservatively will become $1.3 million in 20 years without you adding even a dollar to it.

The thought of retirement is boring and signifies winding down one’s life.

No, fuck no. Retirement is simply the point when you leave your full-time employment (job) and no longer need steady income to run your life. There is no retirement police that’s gonna come banging on your door. There is no “bare-bones” retirement vs “cush” retirement. And retirement doesn’t mean that you have to or want to or need to stop working.

After I finish my urgent care shift I may come home and work on my condo, work on a post on this website or work on some other project that I enjoy doing. However, work and job aren’t synonymous. A job is something you must do in order to generate income to live off of. Work is something you do because it needs to be done but more importantly it’s something you want to do.

You can retire and continue working on amazing projects that don’t just benefit your pocketbook but hopefully touch the lives of many more individuals. You can build charities, do medical mission work or build enlightened businesses. You can obtain grants for your charity and pay yourself and income… is that a job? If you’re willing to do something for free then you’re likely never going to need to ‘retire’ from whatever it is you’re doing. That’s the goal of this whole website… to get you to retire from whatever the fuck it is that you need to do in order to pay for your overhead and get you to do start working at something you want to do that just happens to also generate income.

I can’t retire before age 50.

If you have $150k in a savings account you could leave the country (and probably default on all your debt) and settle down in a developing nation where your $150k could generate an absurdly high percentage of passive income. In the Ukraine, Bangladesh and Mongolia your money could earn you as much as 15% in a savings account alone. I know, you’re DYING to move to Mongolia, but wait I’m merely making a point.

Your lifestyle is what determines the age you can retire at. All these dumbass financial advisers working for shitty groups such as Charles Schwab don’t know dick about your exact situation. Every large organization in the US will benefit from you retiring as late as possible. The more you work the more you will spend, the more you will consume transportation goods, the more you will need in health care, the more insurance you will need and the more you will invest into retirement accounts run by brokerage companies.

There are a boatload of people who have retired before age 30, before 40 and obviously before age 50. The person who can accomplish this isn’t the traditional consumer. They don’t believe that a 30-year mortgage is a good deal. They don’t finance automobiles, they don’t pay $150/mo for cable and they don’t pay $100/mo for a cellphone plan. They don’t run to the doctor for every cough and cold and they can fix most things they own.

I can’t retire without a pension.

Pensions are great, I’ll admit. But let’s look at what a pension is. The traditional pension is when your employer puts money aside for you during your working years and then pays you a percentage of your salary once you hit retirement age. The pension fund will be kept at some large financial institution or with a large insurance group. Some pensions are adjusted for inflation and some are paid out in lump-sums.

I am about 3 years and 2 months away from vesting in my pension plan (as of this writing). If I stay with this company until 5/2019 then I will receive 20% of my average salary starting at age 65 until I bite the dust. So am I going to work another 3 years so that I can collect an extra $60k starting at age 65? In all honesty I don’t think so.

Almost all of them will pay you your money once you hit an IRS mandated retirement age. The lowest I’ve seen is 55 (not counting military). And if you choose the earlier age you will decrease your payout by over 50%. Furthermore, to vest in pension plans you generally have to work at an organization for at least 5 years and as high as 10 years. Is your pension then guaranteed? Well, technically yes but there are plenty of pensions that have gone broke over the years.

I’ll write more about this later but you can create your own pension. There is nothing magical about a pension. This site is about demystifying as much as possible in the financial sector. We’re doctors, if we can figure out the human body then personal finance should be cake. You can read more about SPIA’s here, it’s a great article on what a Single Premium Immediate Annuity is.

I need my job for the benefits.

Most of the benefits offered by employers are excessively luxurious and redundant. They are mostly there to entice you to work for that company and once you are used to having those benefits it becomes your golden handcuffs.

I owned cars, traded cars and repaired cars… I didn’t think there could ever be a day in my life that I could live without one. Today I live in Portland and don’t own a car, don’t pay for car insurance and don’t have to worry about mechanic bills or registration fees.

You don’t need a health insurance plan that costs nearly $1,500/mo, you’re a doctor for fuck’s sake. You don’t need a group disability insurance, you can purchase your own occupation specific policy from various large reputable companies. Life insurance… I won’t even get into that, there is a ton of info on buying your own. Dental insurance is a joke. 401(k)’s and other qualified plans are a great way of lowering your taxable income but you don’t need a job to contribute the current IRS maximum of $53,000/yr to a retirement plan.

Investing on wall street is scary, it’s too unstable and will likely crumble.

The day wall street crumbles you will have much bigger problems than worrying about ‘early retirement’. However, wall street is definitely unpredictable and overvalued. Will it crumble? Eventually all things crumble. We cannot be so blindly patriotic to think that the US will remain a global power. All large powers have eventually failed and global economic powers have gone into recession and still not recovered. What matters is that you build a lifestyle that you have the most control over and not someone else. If you are die-hard consumer and would die without the internet, couldn’t survive without packaged goods and couldn’t live without electricity then you are probably living a bit of a dependent life. There is no need to go to the other end of the spectrum but becoming more self-reliant will make you less afraid of structures crumbling around you.

I need 80% of my pre-retirement income in retirement to live comfortably.

Whoever came up with this was a marketing genius. I bet 90% of all doctors fall for this. First of all who is telling us that we need enough savings to cover 80% of our pre-retirement income? The answer: all the major retirement brokerage houses. Why? Because the more money you keep with them the more money they will make off of you. And they hire so many tools that call themselves ‘financial advisers’ when in reality they are just pushing the products these companies sell. They pay thousands of dollars for idiot marketers to write articles all over the web telling you how much you need to save.

I’m not saying it’s simple to know how much you need. I think sitting down with a good financial adviser is a great way to come up with some sort of number. But it aint got dick to do with what you made before retirement. If you do want to play around with a retirement calculator I highly recommend the one built by the Personal Capital folks. It’s a bit involved but read through it well and utilize all aspects of it.

I need to leave money for my offspring, so I need to work longer.

If you build an investment portfolio that generates income then you have the option of taking some profits off the top and feeding the rest back into the initial capital. Wtf am I talking about…? So, you have $100k invested in some diversified dividend funds. We will assume that after taxes this investment generates around 5% a year for you. You could take 3% and pocket it but reinvest the other 2% so that your principal capital will continue to grow at 2% per year. Extrapolate that and after 30 years that $100k will be worth $182,000. Now imagine the same situation with $500k invested… it would be worth over $900k after 30 years.

The point I am making is that if you do want to leave a legacy don’t discount the power of compounding. You can take money off the top and still have your investments grow in value.

I need a paid off house before I can retire.

This one is tougher. But I can with a lot of certainty say that you are always better off having your money liquid that tied up in a house that you live in (not so if it’s a rental). Sure, there are hundreds of stories out there of people who bought a home and sold it for “hundreds of thousands” more. Funny thing is I never meet these people. Or when I meet them and they tell me that they sold their home for a profit – a quick napkin math shows that there is no way that their “profit” covered their interest, property taxes, longer commuting costs, property maintenance or selling cost.

I’m getting off topic. If you have a modest home that’s paid off in retirement then you won’t have to worry about rent, moving and are a bit more protected against inflation. But you will still have property maintenance costs, property taxes and possibly HOA dues. Over its lifetime a median home will have $50k in renovations, $20k in pluming work, $5k in electrical work and $20k in roofing maintenance/repair. This is not taking into consideration painting, damage repair, basic upgrades or landscaping.

One advantage you will have going into retirement without a home is location flexibility. Another more important advantage is that you will likely cycle through a real estate market downturn/crash. If you’ve done your research you will likely snag up a great deal.

I need to be able to cover all my current expenses before I can retire.

No need to repeat myself. You will NOT be spending as much in retirement as you are spending in your working years. Yes, you will travel, you will want to pay for new experiences or pursue a new hobby. The good thing is that traveling gets so boring after a short period of time that you will naturally stop. Now, you may do extended travel by going and living in other locations for several months/years at a time. In that latter scenario living expenses will approach your non-travel living expenses.

 

Got any other myths or fears you’d like some thoughts on?

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