Why You Will Never Retire – The System is Flawed
An article on CNBC’s “make it” says that Americans are “disastrously unprepared” for retirement. I’ve mentioned it before as well that only 10% of Americans think they will have enough to retire. CNBC’s article pointed out “flaws in the system”, so I guess there’s nothing you can do about it.
Or is there?
Mindset Matters Most
We’re going to break down how you can still prepare for retirement despite the flaws in the current system, but first, we need to talk about mindset.
It’s easy to be discouraged by obstacles and less-than-perfect systems, and there’s nothing wrong with pointing out the shortcomings of the status quo. However, your mindset will be the single most determining factor of your own success.
If you think to yourself that “the system is flawed. I can’t save enough for retirement.” then this will become a self-fulfilling prophecy. As Mahatma Gandhi once said:
Acknowledge that the system is flawed, but instead of saying, “I can’t save for retirement.”, ask “how can I still save for retirement?”. Simply rephrasing your thoughts in this manner will help you create a mindset in which you are in control and responsible for your own success. There will always be obstacles, difficulties, and inefficiencies. However, there are plenty of options to set yourself up for success, and we’re going to get into it right now.
Fixing the Flaws
CNBC’s article pointed out several flaws with the current system for American retirement. First, Social Security benefits are not enough on their own. The average Social Security benefit is only $1,470 per month. Furthermore, American employers are moving away from pension plans, which means employees are on their own to fill the gap that Social Security doesn’t meet.
Employer-sponsored retirement accounts, like the 401(k), are supposed to fill the gaps of low Social Security benefits and disappearing pensions. However…
There are a variety of employer-sponsored retirement plans these days:
- 401(k) for employees in the private sector
- 403(b) for employees in the public sector
- TSP (Thrift Savings Plan) for military and other government employees
If your employer does not offer any of the above, that’s okay. You can still set up an Individual Retirement Account (IRA) and access the same tax advantages provided by these employer-sponsored accounts. If you have already maxed out your IRA, then you can also begin saving and investing for retirement in a brokerage account. Again, mindset comes into play. Just because one option or tool isn’t available to you doesn’t mean other options aren’t.
This is true. It has taken me some time to learn about how my 401(k) works and how to optimize my use of the account. Fortunately for you, I’ve distilled my years of learning into some easy-to-follow posts. In less than 30 minutes, you can learn about 401(k) plans and navigate them like a pro.
- What is a 401(k)?
- Traditional vs. Roth – Which One is Better?
- What is Asset Allocation? – Smart, Simple Investing
The article cites that money in an employer-sponsored retirement account can be accessed before retirement, which makes your savings more vulnerable. This is true, but it comes with a 10% penalty (with some exceptions). The first remedy for this is to set yourself up with an emergency fund so you don’t need to take withdrawals from your retirement account to cover any unexpected expenses.
The next step is understanding your own money habits. If you’re likely to be tempted to spend your growing balance, set your contribution rate and then forget about it. It’s not necessary to check your balance everyday. In fact, this can be quite stressful during a volatile market as you watch your balance go up and down. You’re in it for the long-term though. Rest assured that your savings will continue to grow as long as you contribute and leave the money invested. For example, the S&P 500 has already recovered from the pandemic’s stock market crash and appreciated by another 28%! (at time of writing)
It may be cliche to say, but “Rome wasn’t built in a day.” Saving only $113 per month, the average cost of a cellphone plan in the US, at an average 8% return will add up to $170,000 after 30 years. Consistent baby steps really add up.
It’s All Up to YOU
Is the system “flawed”? Absolutely. Pensions are becoming a thing of the past and Social Security is inadequate for replacing your income in retirement.
401(k) plans aren’t perfect either, but you have a choice: accept defeat and blame the system, or find a way to use whatever tools are available to set yourself up for success and achieve Financial Liberty.