You may wonder why you should bother with retirement-related stuff at all. Here’s why.
Why bother? Because you are your own family business. This is a very powerful notion, one that I have taken from an excellent book that you should refer to if the idea excites you. (It’s Douglas McCormick’s Family, Inc. published by John Wiley.)
When we work, we automatically tend to think of ourselves as employees. That just makes us one of a vast multitude. Think differently. You are also your own family business!
When you start working, your asset is labor. You use this labor to earn money to spend. That’s what enables you to survive, and also to thrive, to be happy; you won’t be happy with no money.
Your labor asset declines over time. In fact, you want it to. You don’t want to have to make it last forever, to use it forever, until you pass away. You want to be able to stop providing it, ideally at a time of your own choosing, ideally at an age when you are still fit and energetic enough to enjoy the spending even more because you now have the time to devote to enjoyment. (In the old days this used to be called retirement. Again, think differently. This is just life after full-time work.) This is freedom! This is the control over our future that we all want.
To enjoy this phase of life, to even make it feasible at all, you have to convert your labor into financial assets. That means you have to save some of it. If you spend all of it, you can’t save any, and that defeats your purpose because you need those financial assets.
Your financial assets grow as you add to them. In fact, they ought to grow much faster than just by adding to them. They ought to grow by investing them. (But that’s a story for another time.) That means that systematic investing, with a focus on growth, is the main focus of this phase of your family business.
As you spend your financial assets, they will deplete. In this depletion, or drawdown, phase, it’s important to keep them growing, but now it’s also important to bring safety into the equation because your labor has ended and you no longer have the option of adding to your financial assets from labor. And you don’t know how long you have to make your financial assets last, because you don’t know how long you will live. You need to find a way to ensure that you don’t outlive your money. Longevity protection, safety, growth: those become your family’s three financial goals, as you happily enjoy the time that your labor has bought.
That’s why you should bother.
Convert your labor into financial assets. That’s how you enable yourself to retire.
I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.