CHRONOLOGICALLY, RETIREMENT may be our final financial goal, but we should always put it first. Partly, that’s because retirement is so much more expensive than, say, buying a house or putting the kids through college, so it takes many decades of saving and investing to amass enough for a comfortable retirement. But among financial goals, retirement is also unique in two other ways: It isn’t optional—and we can’t pay for it out of current income.
It’s great if we can buy a home and pay our children’s college bills. But neither is something we have to do. By contrast, almost all of us will eventually have to retire. Even if we are fully committed to working until the day we die, eventually we will likely be forced into retirement by our employer, by ill-health or because we simply don’t have the energy anymore to get up and go to work.
Families are regularly exhorted to save for their children’s college education. Some savings are also required to buy a home, because we will need to pay closing costs and we will likely have to make at least a modest down payment. But in the end, whether we are paying college bills or purchasing a house, much of the cost will be paid out of current income.
We take out a mortgage and then effectively buy the house on the 30-year installment purchase plan. Moreover, our monthly mortgage cost often isn’t that much greater than the monthly cost to rent, so there isn’t a huge added out-of-pocket cost when we go from renter to homeowner. Similarly, while families might amass some savings to pay for college, they often cover much of the cost out of current income, whether it’s paying the bills as they arise or borrowing money and then repaying those loans over time. By contrast, we can’t pay for retirement with our regular paycheck—because at that point we won’t have one. Instead, on the day we quit the workforce, we need great gobs of money set aside.