It is a barely concealed secret among my close friends that I hate personal finance gurus. I think they are all frauds peddling impossible approaches to savings and investments that do little other than demoralize normal Americans and make them fear that they are going to be pennyless paupers when they retire. I think it is all bullshit.
Take this piece in the Atlantic. Obstensively, it is about the absurd financial confessionals of rich people who whine about how they barely get by while spending tens of thousands on private education and lavish vacations every year. These narratives have been promoted by the proliferation of financial advisement blogs and websites. Their goal is to get people of every income range to save and invest more, as illustrated by the quote below:
Dogen, for his part, believes that saving needs to hurt to work. “Anybody who has gotten braces or who has lifted weights understands this concept,” he says. “If the amount of money you’re saving each month doesn’t hurt a little, you’re not saving enough.”
This is the fraud of modern personal finance in a nutshell. Hokey cliches with undefined parameters that pressure people into feeling like they are not doing enough to prepare for the future. Does your current savings amount cause you to do without something you really need or want? If it does not you are not saving enough!
Can this be true? Sure. But it is just as easily false for many others. It leaves out all of the context that determines whether you are spending too much or not saving enough and substitutes a thoughtless cliche in its place. Above all, it assumes that saving the maximum amount you can is the “right” way to use your money.
To what end? Clearly, for Dogen, it is to make the 3 million he “semi-retired” on when he negotiated a severance package from Goldman Sachs last for another 40-50 years. Good for him. That situation is highly uncommon and sort of silly to use as a starting point for regular people. Many people (especially in higher status or income jobs) love their work and do not want to retire– earlier or otherwise. For others, life circumstances make saving that sort of money literally impossible– illnesses, family emergencies, education, children, divorce, being swindled or conned by a partner can all stretch or break an individual’s finances.
What does saving enough that it hurts mean for the average American family supporting two adults and two kids on 50k? Not having any entertainment budget– not even an internet account or the occasional family pizza? Only buying clothes from a thrift store for your kids? Or does only having domestic lager rather than the occasional craft beer count? Can you see how useless this distinction is?
It all ties into how narrow these finance gurus understandings of what makes for a good life are. It is perfectly ok to not be prepared to retire with enough money that your spending can continue at the same or an accelerated rate when you stop working (the number of these sites that claim spending goes up in retirement are resting on some seriously suspect data). If you want to miserly squirrel away every dollar you make so you can retire at 55 and live larger than you ever did before, go for it. But stop trying to act like everyone who makes a different decision is living irresponsibly.
Along those lines, Social Security is not going away. It is not going to go bankrupt. It will never be phased out. This is politically unfeasible. No matter how hard Paul Ryan wishes for it, Social Security is never going to become a real boy and run away with the circus. It will still exist when you retire, whether you are 65 today or 25. You should be assuming that these benefits will exist at the level they have been promised to you. That is prudent and realistic planning.
Most normal people retire and spend less. Largely because they no longer have a mortgage payment. Food, transportation, and property taxes in most of the country are pretty reasonable. Cash-out on your house and downsize for extra savings (and tap into your unused equity). This is how normal Americans retired without 401ks in the millions for decades now. It still works.
Will you be able to be on cruises half the year or own a fabulous winter home saving like this? No. But why are you planning to suddenly live like a titan of industry in your twilight years?
Perhaps I hate this approach to pressuring people to save and invest for tomorrow at all costs because I am intimately aware of how false the promise of tomorrow is. I should have died when I was 20. No amount of saving or investing for the future helped me in that moment. I’ve had friends lives cut short by illness and accidents. Whatever plans they had, financial and otherwise, were done and gone. I’d never suggest people throw caution to the wind and live only in the moment– the promise of tomorrow quickly becomes the threat of tomorrow when you live like that. Save what you can. For some that might be 5%. Others might find 10% works well for them. Others might barely be able to put back anything. That is ok too. Just be sure you adjust your expectations for later in life. And know that putting all your eggs in the tomorrow basket is also reckless.
One of the personal finance industry’s favorite talking points is that the opportunity cost of spending now is the loss of compounding interest in the future. This is true. But there is an inverse to the point too. The compound interest of tomorrow comes at the cost of enjoying things while you are actually able to (and with the people you want to enjoy them with). Do a week at Disney every spring with your school-age kids now or spend the winter in Boca in your late 80s? There is no right or wrong here, just different priorities.
Don’t let people like Dave Ramsey or Sam Dogen tell you what the right level of savings or investment is for you. Their notions of “financial independence” have very little grounding in reality– they simply think the risk of not having enough money at 90 is higher than the value of living comfortably in the here and now. Maybe they think some Randian future where we leave old people to the wolves like we did prior to the 1920s is coming back. I wouldn’t put money on it, but people believe all kinds of crazy shit.
In short, if you value building a “nut” and doing most of your discretionary spending late in life, have at it. But leave people who have decided that they’d like to live a little while they know they can enjoy it alone. You do not have a monopoly on the right way here and some of us are really tired of hearing you prattle on about it.