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How About Later?

Jonathan Clements

IF WE’RE TO RETIRE in comfort, we need to be deadly serious about saving money for perhaps three decades. That leaves a little wiggle room: If our careers span four decades, we might have a decade or more when we can be a little less focused on making and saving money.

The question is, when should this “goof off” period be? Conventional wisdom has its answer: We should pursue our passions in our 20s, traveling the world and dabbling in this and that, before we’re burdened by mortgage payments and young mouths to feed.

I think this is nonsense.

From the reactions I’ve received, I realize my opinion is an unpopular one. For some reason, we—as a society—believe youth ought to run wild, but middle-aged folks should be content to grind it out day after day in their cubicle. Here’s why I think conventional wisdom needs to be turned on its head:

1. In our 20s, we’re certain we know what we want—and we’re often wrong. We pursue careers, only to find we hate our chosen profession. We spend money on all manner of things, only to grow quickly dissatisfied and perhaps even regret our purchases.

But time helps: As the years pass, we come to understand ourselves better. What to do? Maybe we should spend our 20s and 30s making and saving money, while we figure out what we really want from our lives.

2. Pursuing our passions grows more important as we age. In our 20s, the work world is novel and exciting. We’re anxious to learn the rules, prove our worth, and collect promotions and pay raises.

None of this seems nearly so exciting in our 40s and 50s. By that point, we have had plenty of career successes and pay raises—and discovered they deliver only fleeting happiness. Instead, we hanker to spend our days doing work we love, rather than the work our bosses demand. To use the psychological lingo, we become less extrinsically motivated by the carrots and sticks of the work world, and more intrinsically motivated by what’s important to us.

3. If we save when we’re young, our entire financial life will be easier. Let’s say we want $1 million at age 65 and our investments earn four percentage points a year more than inflation.

If we listen to conventional wisdom, we might pursue our passions for the first 10 years out of college. Finally, we settle down at age 32 and save in earnest for the next 33 years. If we sock away $1,215 every month, we’d have $1 million at age 65.

What if we didn’t goof off for those first 10 years? Consider an alternative scenario: We sock away $821 a month for 33 years, from age 22 to 55, and then stop saving and simply leave the money to grow for the final 10 years before retirement. Those final 10 years could be our “goof off” years, when we pursue careers that maybe aren’t so lucrative, but which we find more fulfilling. Result: We still have our $1 million at age 65 and we still save for just 33 years—but our required monthly savings is 32% lower.

Starting to save early doesn’t just mean more help from investment gains. It also means a lifetime of less stress. By starting young, we quickly get ourselves in good financial shape—and we’re spared the money worries that dog so many Americans throughout their lives.

But what about living in the moment? As always, the greatest temptation is to make our current self happy. But what about our future self? We will almost certainly become that person: If we’re age 20, there’s a 90% chance that we’ll live to age 60, according to the National Center for Health Statistics.

Put it all together, and I’d argue it makes more sense to pursue our passions in our 50s than our 20s. There are obvious exceptions: If you have athletic talent, it wouldn’t be wise to delay your NBA tryout until age 55. But for those of us who aren’t seven feet tall (or, for that matter, six feet), saving first and pursuing passions later makes a ton of sense. My advice: Spend your 20s and 30s getting yourself in great financial shape—and one day your current self will be filled with gratitude for your old self.

Follow Jonathan on Twitter @ClementsMoney and on Facebook.

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Mr. Iced Tea
Mr. Iced Tea
3 years ago

Jonathan, welcome to the real world. I think you are absolutely right. The Millennial approach to work and leisure (you did not say this, but this is what you say means) is ideal but not practical. It is fun but immature for most all. I welcome you to the real world because it looks like you are beginning to give sage advice. Many if not most times, your advice is … cheap is good. and DIY is more important than paying for advice and support. You share those points with the Millennials. And although not a party to this article, maybe you can begin giving credit to the impact of advice that most financial advisers can provide investors and families of all ages. That will help many accelerate their good decision curb.

Jonathan Clements
Jonathan Clements
3 years ago
Reply to  Mr. Iced Tea

I’m all in favor of fee-only advisors acting as fiduciaries. I’m not a fan of commission-hungry brokers and product-pushing insurance agents. Those “advisors” do far more harm than good. That’s the real world.

Mr. Iced Tea
Mr. Iced Tea
3 years ago

Agreed. But you paint everyone with the same brush. Your readers see the word advisor. And they don’t know the difference. So they do nothing. And this is where your writing does considerable harm. Your writing says trust no one, so you hurt more than you help. Because a very small percent can behave properly to avoid fatal mistakes. One more thing: I agree with you on the bad actors. Most commissioned people are not bad actors. For example, with some of the work you do, you likely get paid on a per piece, or per book sold basis. This is the same as commission. Does not make you a bad guy. Stop the temptation that bad news sells, and that painting all advisors as bad news will get you higher readership. Evolve into something more legit in your writing.

Jonathan Clements
Jonathan Clements
3 years ago
Reply to  Mr. Iced Tea

Where do I say “trust no one”?

Mr. Iced Tea
Mr. Iced Tea
3 years ago

It is said anytime you use the term advisor, and you disparage or at least cast a significant pall over advisors, and you decide not to distinguish among advisors. And you decide not to give credit to those who are on commission and act honorably. And you do not disclose that for some commission product investors actually save money v paying a fee after a relative short time. Especially in the case of Edleman or Fisher Investments, fee only offerings that charge significantly more than the 1% “avg” fee, and offer very little if any planning.

And you did not answer that infact you get paid a commission (bounty – same thing) for books sold, articles sold. If you are not paid a salary as you were with WSJ and you are essentially a stringer, you get paid for what is used/bought. So you slant to what incites readership, which is to be negative or scary. In many ways, you say do not trust advisors. Can you confirm that you get paid per article published or book sold? Can you confirm that, potentially, this may not necessarily mean that you are “commission-hungry” writer and content-pushing” though you get paid on results like insurance people? Journalism is no more noble then being a financial advisor, after all. You don’t need a license to write. Confirm that many, insurance people, act responsibility. Confirm that many commission-based insurance products are much cheaper to consumers than a comparable fee-only insurance products? (Ever hear of the law of large numbers?) And why you don’t talk about that often, because that is a big gotcha.

BenefitJack
BenefitJack
2 years ago

Decades ago, I was introduced to a moderator of a corporate-sponsored pre-retirement planning seminar. I remember many things about what he contributed to the discussion. One of great importance to me, one he shared with seminar participants who were generally ages 50 – 60, one I took away, made my own and continue to espouse to those planning retirement, is that: “Life is not a dress rehearsal for retirement. Start doing those things you always wanted to do, today!” When I first heard him say that, in 1985, it reminded me of my parents, one of which died prematurely.

These days one might phrase that as “Start working on your bucket list, recognize that as you check off an item, it will change you and the remainder of the list.”

So, my advice to Millennials, including to my own children (starting when they were in their own teens, has been “Life is Short” and “Do Good, Do Well and Have Fun”. Don’t put off anything – neither the opportunity to accumulate wealth by investing early nor the opportunity to enjoy both everyday and once-in-a-lifetime experiences.

When opportunity knocks, answer with a smile, optimism – whether it is your employer’s 401(k) plan or a Volunteer Vacation. Look for opportunities in everything – don’t think of future goals as “later” – remember that the best timing for a pursuit isn’t always “today”. And, avoid pessimism – as Oscar Wilde noted: “A pessimist is somebody who complains about the noise when opportunity knocks.”

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