5 Reasons Why You Can’t Retire
When I ask people how they envision their retirement, especially younger individuals, they struggle with that question. Envisioning retirement can be different for a lot of people. For me, I absolutely love every minute of what I do. I cannot see myself retiring completely, at least not at this point.
I’m an optimist by nature. I like to think of the best in people and that we are all working towards a common good and genuinely care and love one another. However the realist side of me often times takes over when I see negative news or bad behavior in humankind. In my practice I often see egregious acts of bad behavior that stem from the simple lack of financial education.
There is so much information out there teaching people how to invest. Within seconds you can get more information than you ever dreamed of about funding Roth IRAs, 401(k)s, real estate, business ventures or any other type of investment.
Despite this, the reality is that most Americans will not be able to successfully retire. While this does include baby boomers, most of whom will will benefit from pensions, Social Security and Medicare, I’m talking specifically about those who are 45 years of age or younger. Working professionals with good income with no pensions and no hope for Social Security or Medicare benefits to sustain them in their older years. This is a group who may never realize their retirement years. Here’s why and what you should do about it:
1. Most Americans refuse to learn how taxes really work.
The Bible, one of the most widely published books in humankind history, a rather large book, has over 800,000 words. The IRC, or the Internal Revenue Service tax code, contains over 4 million words!!! Yeah, taxes are boring & confusing. Personally, I have a strong tax background but I’ll never fully understand the entire code nor will I ever read the entire IRC code. The simple version is this: You pay way more in taxes than you actually realize. The source of your income is just as important as what you do with it. Want to get ahead? Learn how taxes really work. Take a course, hire a bookkeeper. Work with a tax professional like a CPA or EA.
2. You don’t know how much you need to have in retirement savings.
I wrote about this earlier on www.davisfinancialllc.com and you can check out the article here. Want to make $100,000 year? You’re going to need approximately $2.5 million in retirement assets if you intend that money to sustain you for at least 30 years. Adjusted for inflation or 24 years from now, you will need to have $5 million. Reverse engineer the math and see what it takes to deposit $5 million into an investment account. If the government is limiting your Roth IRA contributions to $5500 or $6500 per year(age 50+) you’re not gonna make it. If you’re contributing $18,000 a year and you’re over the age of 45, you’re not going to make it. You need to consider other investments. As I mentioned above, learn how you can take tax-advantages with your income sources & apply this to your investments. You may find additional opportunities that you never knew existed. And this brings me to my third point.
3. Americans don’t read. Most of them, anyways.
What happened to that passion for reading & education most of us experienced in our youth? Personal financial education is required to improve your investments. I was at a conference in Scottsdale over the weekend and presenter, Nancy Hetrick, made an extremely valid point. She reminded me that while many people set aside 10% of their money for their investments and 10% of their favorite charity or local church, most people do not set aside any time for personal development. She said, “I think people should be spending at least 10% of their time and money in their own personal development.” I couldn’t agree more. Instead of laying in bed watching dancing with the stars or just perusing Facebook to catch up on the latest gossip, why don’t you pick up a book instead? Educate yourself about a topic that you do not understand. Join a local Facebook group about beekeeping, gardening, investing or anything else! Start listening to podcasts while you exercise or garden. That’s what I do and it has made a tremendous difference in my life.
4. Have you ever hear a word enough times that it loses all meaning & power?
I believe diversification has lost all meaning to the American people. When the average American hears the word, “diversification” they immediately think of their Roth IRA or a 401(k) plan; a broad allocation of index funds split between equities and bonds. I do not consider this true diversification. If all of your assets are in the market & it drops in value, or perhaps in bonds & interest rates skyrocket, what is going to happen to your diversified portfolio? Diversification in my mind is a representation of non-correlated assets. The perfect trifecta, in my opinion lies within equities, real estate and business opportunities. But aren’t these things risky? What about investing without a proper financial education? Isn’t that risky? You bet. I’ve written at length regarding the risks that are necessary to invest in equities, business or real estate ventures.
5. Last but not least, you don’t know what you want.
When I ask people how they envision their retirement, especially younger individuals, they struggle with that question. Envisioning retirement can be different for a lot of people. For me, I absolutely love every minute of what I do. I cannot see myself retiring completely, at least not at this point. What I can see is long sabbaticals & lots of vacations with my family. I envision myself enjoying my life rather than slaving away 80 hours a week to pay for a house I can’t afford & keep up with the Joneses. Working so long that when I’m old and gray and my parents have passed away I can finally start “enjoying my life”. I don’t know about you, but I want to enjoy my life today. I want to enjoy my children, my wife, my career and my community. I want to relish every day, as every day is a present. Not to be too corny. Fortunately there is a fix for all of this – it’s called taking action. I would challenge anybody reading this to stop right now and do the following:
- Write down three things that are most important to you.
- Write down three things that you would like to change in your life.
- Look for the overlap between those things and choose one thing to work on today
- Set a short three-month goal to take an actionable step to improve your life.
Don’t know where to start? Contact us today and we would love to help you get going.