Why save for my retirement?

October 21, 2015 11:54 AM

Pessimist seeks reason to save for retirement.

I am 27, in a stable job in the US.

I am convinced that, in my lifetime, that global warming will have totally disastrous consequences upon the United States and the American way of life. The consequences will shorten or end my life. I have seen that people have their planned retirement destroyed from the latest recession, and I am convinced, for structural reasons, that such a crash can and will happen again. I also believe that there is very-very-slim-to-probably-none chance that I will ever be able to retire, even if I did save. I see no evidence that things are getting better.

I have the ability to put money in a 401k-type account and a pension fund. I suspect my pension fund will be dismantled by the time I can get to it. The 401k is matched up to 5% and is fully vested right now up to 3% (remaining in 2 years).

I am short on cash at the moment, and would be able to do something with the ~$400/month that I'm currently saving. I have a lot of student loan debt (will be eligible for forgiveness provided I make 10 years of on-time payments) and a car payment. I'd prefer to pay that off and then travel the world and see relatives/friends while I can (in that health and youth are on my side, and that travel is still cheap and feasible to most of the globe (low fuel costs, places not underwater)). I also do not yet have an emergency fund (wiped out by a series of emergencies).

Given that, are there logical reasons for me to be saving for retirement?

posted by quadrilaterals to Work & Money (34 answers total)

1. There's a big chance that you're wrong on many counts.
2. Even with market volatility, if you keep your investments in diversified accounts for the long-term, the market just about always pays off
3. The money is available in different forms as you grow it. You can borrow against it and when you pay yourself back, you get all that money back.
4. It 's a great savings tool for later in life, so that even if you choose not to retire, you can pay for a better lifestyle on fewer hours down the road.

And finally:

5. EVERY SINGLE PERSON who is in their 20s basically feels this way, and then when they get to be my age, they are kicking themselves for not saving in their 20s. Don't be that person.
posted by xingcat at 12:05 PM on October 21, 2015 [50 favorites]

You are far from the first person under the age of 30 who believes that the world will be a glowing radioactive cinder by the time he or she is 50. It's probably not going to happen that way, and if it doesn't and you're broke at 50, you'll be one unhappy puppy.

Also, saving for your retirement will make you less able to afford traveling the world (presumably by airplane), an act which will only worsen the problem that you are rightly concerned about.
posted by crazylegs at 12:07 PM on October 21, 2015 [8 favorites]

A lot of conventional financial advice says that you actually shouldn't be saving for retirement. Instead, you should be rebuilding your emergency fund, and worrying about the rest once you've got that sorted.
posted by joyceanmachine at 12:08 PM on October 21, 2015 [3 favorites]

Well, first up, your pessimism may be wrong. I used to be in the field of looking at ways that climate could go really, really bad, and in spite of that, I save for retirement.

Secondly, if you forgo a company match you are literally giving up free money. Putting that 3%-5% in is a free raise your company is giving you. (Also, assuming this is a tax-deferred account, the money you're putting in would be taxed at your marginal tax rate -- you would not be seeing the full amount in your take-home pay.)

Third, if you ARE wrong in your pessimism, then forgoing saving now is forgoing 30+ years of compounding returns. There is no more powerful time in your life to save than in your 20s (except for before you're in your 20s).

Fourth, why are you so sure retirement can only be at the tail end of your life? There are people retiring at 45 and 55 and hell, even 35, although that one requires a high salary and a brutal savings rate. If you're willing to live on a low amount of money, you can retire early. Check out the forums at Mr. Money Mustache and you'll find people at every age either planning to retire early (and actually doing so), or at least getting enough money put away to give themselves the option to retire early, or even just dial down the intensity of their dayjobs.
posted by pie ninja at 12:08 PM on October 21, 2015 [7 favorites]

My reasoning is that the 401k is a relatively painless way to save up a chunk of money, especially since it's before-tax money (which is like getting an extra amount to save, that you would have lost in taxes if you were saving after-tax money) and you're basically doubling whatever you're putting in with the match. For example, $1 of pre-tax money into the 401k and matched = $2 saved, but after taxes that same $1 is like $0.70 in your savings account.

If you don't want to think of it as a retirement fund, think of it as a dire emergency fund. Yes you pay for the privilege, including penalties if you take the money for an unallowed reason, but you CAN take it out if you have to. It's always your money. I just took advantage of a job change and subsequent rollover options to take out a part of my 401k to wipe out some credit card debt. Yea I have to pay an early withdrawal penalty, but it was worth it to me. If you can't save 5%, then save 1%. Anything helps. And it does add up if you set it and forget it.
posted by cabingirl at 12:10 PM on October 21, 2015 [1 favorite]

For the same reason that you shouldn't start shooting heroin.

The high is amazing and you'll feel incredible.

Life is sort of a balance between what's good now and what could be good in the future.
posted by MadMadam at 12:12 PM on October 21, 2015 [4 favorites]

As others have mentioned you need to at least consider the possibility that you're wrong - no matter how "convinced" you are you can't know for sure, because it's the future. If you completely fail to plan for your own old age (when you have the means to do so, which you seem to), then you are obligating someone else down the line to do it for you, which is both irresponsible and disrespectful.

That said I think it is defensible to wait a while, particularly if you have a high-interest car loan and no emergency fund; certainly feel free to take care of those before funding a retirement account. As to the student loan, though, you do realize that the best economic play there is to make the minimum payments for 10 years and take the loan forgiveness - right?
posted by Joey Buttafoucault at 12:15 PM on October 21, 2015 [3 favorites]

My parents have no retirement or emergency savings because they assumed they would always work until they die. My dad lost his job last year (at age 65) and had to file for bankruptcy because there was nothing to pay the bills. He hasn't been able to get a job since. They still have no money. My dad now has cancer and no way to pay the bills for that either. These are people who lived comfortable middle-class lives and they're basically fucked by not saving for older age because they thought they knew.

The same is essentially true for my MIL. Thankfully she has a brother to live with, who is willing to pay her medical bills.

I can't tell you how many times I've seen my parents and MIL cry over the pain they have caused themselves. Don't be my parents.
posted by joan_holloway at 12:18 PM on October 21, 2015 [18 favorites]

You are far from the first person under the age of 30 who believes that the world will be a glowing radioactive cinder by the time he or she is 50.

This. Let's call the list of doomsday scenarios that humanity has faced "List A". Let's call the list of doomsday scenarios that humanity has faced and not overcome "List B". List A is significantly larger than List B. Which is a wordy way of saying "Don't plan for failure."

Oh, and the list of doomsday scenarios that humanity never saw coming, or "List C", is also larger than List B. Which means that even if your retirement planning comes to naught, odds are it won't be because of global warming, or zombie apocalypse, or basically any other nightmares that we're currently having.
posted by Etrigan at 12:20 PM on October 21, 2015 [3 favorites]

Given that, are there logical reasons for me to be saving for retirement?

There are none. If you absolutely believe that the world is going to end and that your job will be stable until the world ends, then you should not save any money. There is no point, and you might as well use your money now when it has value.

If my answer gives you pause, then you realize the correct answer to your question - which is that your assumptions are wrong.
posted by saeculorum at 12:25 PM on October 21, 2015 [9 favorites]

Best answer: I'm 2 years older than you but otherwise you, completely. I 100% believe that infrastructure will significantly break down in the future, due to climate change and other factors, and my "retirement" is likely to be nasty, brutish, and short as a result.

I'm saving for retirement in case I'm wrong. Shrug.
posted by superfluousm at 12:27 PM on October 21, 2015 [9 favorites]

Yeah, apart from any question of whether your predictions are right, retiring or not may not be your choice. Medical issues may force you to retire young. Possibly much younger than 65. Anything you have saved up for retirement from the years when you could earn money may be an absolute godsend in that scenario for you and/or for your family members who are otherwise going to have to figure out how to support you as well as themselves. (Ask me how I know.)
posted by Stacey at 12:27 PM on October 21, 2015 [8 favorites]

Best answer: As a follow-up to my initial post, I would say that you should be far more worried about the risk of getting a horrible disease like cancer than the world blowing up in your lifetime. If anything, saving a huge nest egg means you can pay for your own treatment, because who knows what insurance will be like then (assuming you're American here). And maybe you're thinking, shrug, the world is going to end so why bother with treating the disease, but I promise at some point you will appreciate the comfort that your money can buy in your last few years of life.
posted by joan_holloway at 12:33 PM on October 21, 2015 [3 favorites]

Check into your 401K to see if there is an option to borrow against the balance and/or withdraw money for the purchase of a primary residence. It doesn't have to sit there untouched until you are 67 if you end up really needing it. Max out the company match and then put the rest into other savings.
posted by soelo at 12:41 PM on October 21, 2015 [1 favorite]

You need to save for retirement so just before the apocalypse comes, you can put all that money in guns, bullets, cool leather jackets, and a bitchin' hog to ride on through the post-apocalyptic wasteland.

Do you think that stuff will magically be free in the future? C'mon.
posted by bgal81 at 12:54 PM on October 21, 2015 [21 favorites]

The retirees in 2009 who were devastated by the 2009 crash were not 27 yo putting their money in an index fund for 35 years.

That's not to say that it was their fault. But stock purchases were typically handled by professionals through pension funds, and it was an understandably difficult transition when this job fell to every worker regardless of their skill set.

To compound that difficulty, there was a lot of misinformation on playing the market. People still over estimate the possibility that you can time the market, but 20 years ago it was taken as a given that our success since the 50's couldn't fail. The Great Depression is a national memory about an entire economy suffering, not stock owners. So it's not hard to understand why people unwittingly take on more risk than they could afford.

And hey. Since this is related to compound earnings, let's compound problem even more. Because people did not save a sufficient enough in their youth to take advantage of the steady increase in index funds, people today are still taking on more risk than they can afford. You can't mitigate risk by taking more risk. But people find the alternative of being short in retirement unbearable.

Right now you're guaranteeing that same fate. Your plan doesn't plan for any future. If the worst happens, how confident are you that you'll be dead? Because if you're not, you'll need to rely on the wealth that you created when you were young and healthy enough to create wealth.

A healthy pessimistic view of the world demands more planning and saving now. Your philosophy as written is suicidal. Is that really your long term plan?
posted by politikitty at 12:57 PM on October 21, 2015

I'm 42 and on bad days I kind of feel the same way, but I still save as much as I can, contribute to my pension, etc. If I had a nickle for every gloomy prediction I have made about the future which turned out to be wrong (often very, very wrong), I could probably retire today. So I've got that going for me.
posted by The Card Cheat at 1:21 PM on October 21, 2015 [2 favorites]

I find it helpful to remember that my parents dealt with the threat of nuclear war & environmental destruction looming over the majority of their lives. And here they now are, very happy that they have pensions & 401Ks to retire on. Cover all the bases.

Planning for global warming is wise, but channel that energy into considerations like, long-term maybe you want to move from Miami to Minnesota.
posted by veery at 1:22 PM on October 21, 2015 [7 favorites]

I'm also 27, and I'm piling as much money into retirement as much as possible. I also consider myself a pessimist.

The whole thing is about risk mitigation.

Risk 1: Some apocalyptic event will occur, causing the world/economics to change drastically. Solution: Spend money and enjoy life now.

Risk 2: You will be laid off / retired / disabled without enough money. Solution: Save for retirement.

In reality, I consider the risk of not having a job or getting old and not always being able to save money to have a much higher chance of occurring than some apocalyptic event. (Car crashes, lay offs, etc are common events. Much more common than ALL the things flooding.)

Furthermore, if your company matches your 401k, then it is money you're leaving on the table if you don't take it. For my employer's match, even if I contribute to 401k and withdraw it immediately paying all penalties, I *still* come out ahead. There is literally no reason for me to not contribute to a 401k.

401k is considered your money. You can invest it in cash if you don't trust the stock market. Your employer can't take it away.

If you invested in index funds (or an otherwise diversified portfolio) before 2009 and continued you to throughout the recession, you would have had great personal rate of return. That's because the market bounced back as if nothing happened. If you don't invest in the market, depreciation will definitely happen. So you either lose money at 2% per year (or whatever inflation is). Or you on average get 6% a year (or whatever the nominal rate of return is minus inflation), with the potential that if you withdraw on a bad year, you'll be losing money.

But at the end, it's just risk management. Choose your poison.
posted by ethidda at 1:26 PM on October 21, 2015 [2 favorites]

I'm 64. When I was in my 20's, I had friends who were as sure as you are now that we were all doomed & would never live to old age. They were wrong.

Also: before the 2008 financial meltdown, I had all my retirement money in index funds, too much of it in stocks. But when the market crashed, I let it ride, and now I'm back where I was before the crash, more or less. Not a triumph, but not a disaster either.
posted by mr vino at 1:27 PM on October 21, 2015 [6 favorites]

The impacts of global warming are not going to be felt equally. Already it's clear that the people bearing the brunt of the impact are those poorer and with fewer resources. As sad as that is, for you personally, if you really do think that the effects of global warming are going to be catastrophic, the more money you've stashed away the better off you'll be.
posted by peacheater at 1:29 PM on October 21, 2015 [4 favorites]

I have seen that people have their planned retirement destroyed from the latest recession, and I am convinced, for structural reasons, that such a crash can and will happen again.

Seems like you noticed the worst outcomes but not the people who made it through without panicking.

If you had an all stock portfolio* (bad idea) and invested it all at once at the peak of the pre-crisis market (also bad idea and very unlucky), your portfolio would have been down -55% at the nadir of the market in March 2009. But if you didn't sell and continued to reinvest dividends, you'd have caught back up by the end of 2012. And you'd be up +54% as of yesterday.

A diversified vanilla 401k wouldn't have ruined anyone's retirement plan by itself. You'd have needed to sell at or near the bottom (thus not participating in the recovery) or had a combination of other financial problems like prolonged unemployment or big losses in real estate.

I'm not predicting that we'll have a similar recovery after the next crash. But it's definitely incorrect to look back at the last financial crisis and conclude that investing in your 401k program is a bad idea.

*note: I'm using SPY, an S&P 500 ETF, for these calculations.
posted by mullacc at 2:01 PM on October 21, 2015 [5 favorites]

When I was younger and healthier I figured worst case my retirement plan could be to jump off a cliff. Now I'm older and falling apart I realise I barely have the energy now to get to said cliff, no way I could get there if I was much older and sicker. It sucks hearing people say "oh, you'll think differently when you're older" but turns out that's a thing for a reason.
posted by kitten magic at 2:27 PM on October 21, 2015 [3 favorites]

I like this article which explores what would've happened to a hypothetical investor who saved two grand a year, starting at age 22, and gradually increased it every decade, choosing to invest it as a lump sum at the worst possible time as far as the market was concerned. Spoiler alert: he'd retire a millionaire. Time's on your side, friend!
posted by jabes at 2:33 PM on October 21, 2015 [4 favorites]

I have seen too many relatives have their savings eaten up not to save as much as I can--for one thing, my dad died young and my mom couldn't pay the mortgage on the house with her salary alone (she was rescued, ironically, by my granddad dying and leaving her his estate). My other grandparents lived into their 90s and their estate was drained by the long-term care required, which terrifies me because if I end up in their situation I'd want to be in a nice facility, which is extremely spendy.

But we travel and do fun spendy things, too! We budget carefully to allow us to do that and to sock away as much as possible, and I think we strike a decent balance between "The world may end tomorrow and I'll regret not going to Japan/Italy/wherever" and "Now I'm stuck in a terrible nursing home that smells like pee and cabbage for the last decade of my life."
posted by telophase at 3:18 PM on October 21, 2015 [1 favorite]

If you weigh the fun of spending all your money against the misery of an impoverished old age, the fun is way less fun than the misery is miserable. I'm only middle aged and with a very decent income and savings, but as I start to fall apart I realize how much easier things are for people with way more money than me. And how much harder for people with less. It's no joke.
posted by HotToddy at 3:19 PM on October 21, 2015 [8 favorites]

Like a few others in this thread, I grew up in a time when we practiced for imminent nuclear attack by getting under our school desks to the tune of air raid sirens. Talk about futility and "what's the point" thinking. But now it's 50 years later and here we still are.

Be as pessimistic as you like, but don't let that blind you to possible outcomes other than catastrophe. With little effort or sacrifice on your part, you can foreclose on the possibility that you'll be eating cat food for dinner should you live to old age because civilization somehow muddled along.
posted by Short Attention Sp at 3:28 PM on October 21, 2015 [1 favorite]

You can borrow money for a lot of major expenses, but not for retirement.
posted by kidbritish at 3:55 PM on October 21, 2015 [2 favorites]

I didn't start saving actively until age 28. It's been 12 years and, even with the 2008 crash, I regret not starting sooner. Make changes in your life to start saving. If you're here for a straight answer, pessimism won't feed or shelter you when you're later along in life. It doesn't get any clearer than that.
posted by a lungful of dragon at 6:04 PM on October 21, 2015

I'm a couple years older than you. I'm saving as much as I can because if the shit hits the fan I'd like to be in a position to buy some property up north and move my family up there where the climate may be more livable.
posted by town of cats at 8:17 PM on October 21, 2015

Emergency fund first.

Instead of retirement, look at at 401k/IRA as a future emergency fund, one that is partially free money from your employer.

I'm 61. Doomsday predictions have come and gone, many supported by a majority of the population and scientists. By now the oceans were supposed to be dead, the climate would be progressing to the next ice age, the poor countries would have suffered catastrophic population boom and bust, and wars would be fought over water and agricultural land. My advice is live for today but don't get caught out if the global warming predictions prove to be wrong.
posted by Homer42 at 9:15 PM on October 21, 2015

Best answer: I think about this a lot because it’s a tricky balance trying to avoid the most plausible “worst case scenarios”:

Worst case scenario 1: by not doing something now, you lose the opportunity forever

Let’s say you save every free penny for retirement, and build up a healthy cushion. You don’t have much fun but you figure it’ll be worth it in the long run when you can finally enjoy all that compound interest. But before you get there, something happens: your family and friends die. You die. You have to spend all your free time or money caring for a dying friend or family member. You get too sick or too poor to travel, or can’t travel in the ways you always wanted to. The travel destinations are permanently destroyed due to climate change or other factors (earthquakes, political strife, etc).

Worst case scenario 2: by spending all your money now, you have a really shitty later adulthood

Now, let’s say you make it to age 70. You travelled a lot, did a lot of fun stuff with your loved ones, and have maybe an average amount of debt (so let’s say the amount you spent on experiences etc. was the same as the average person saves for retirement, with no other major spending differences). You can’t afford to live on the small-to-nonexistent income from your pension/government benefits so you try to keep working, but it’s not as easy anymore. Physical jobs are difficult or impossible, and you’re starting to feel a little less mentally sharp - or even if you aren’t, your younger bosses think you are. You’re in the first wave to be laid off, and interviewers seem skeptical about your ability to compete with younger workers. You’re not sick enough to die in the near future, but you’re not sure how you’ll feed and house yourself, let alone enjoy life.

Worst case scenario 3: by spending all your money now, you’re flattened by a financial emergency in the near future and become more vulnerable to both worst case scenarios described above.

For the most obvious scenario, let’s say you get laid off and can’t find work. Or a loved one becomes deathly ill and needs thousands of dollars for some life-saving thing. Or your just-paid-off car stops working, or the roof on your new house caves in, and insurance won’t cover it. You cut all your expenses until you’re miserable but still end up accumulating piles of credit card debt and the interest rates make it pointless to save for retirement until it’s paid off...and now compounding interest is working against you, making it harder and harder to pay off that debt every month.

So. I think most people would agree that a balanced approach is needed to minimize the risk of all three options, directing money towards 1) enjoying life, 2) retirement and 3) emergency savings respectively (debt repayment is a bit separate and helps all three goals, though probably #2 the most). But deciding your exact balance is a very personal decision, based on your personality and priorities as well as the details of your current and (estimated) future life. It sounds like your balance is weighted heavily towards avoiding worst case scenario 1, and within moderation and as long as you’re fully informed about the risks, I think it’s a valid perspective. Just make sure you’re accurately assessing how likely the other worst case scenarios are; don't let pessimism and attention-grabbing headlines distract you.

It might help if you view it as an ongoing process with constant reassessment rather than a single decision - maybe you really want to take that trip-of-a-lifetime next summer, but after you get back you double your monthly retirement contribution, or you decide to take that trip only once you’ve saved up a 3-month emergency buffer, or paid off a certain debt, or whatever.
posted by randomnity at 11:17 AM on October 22, 2015

Oh hey, let me add one more aspect to my worst case scenarios 2 and 3, in case if you ever have kids (which statistically you’re likely to, even if you don’t want them now):

You’re broke or worse, in huge amounts of debt as you near retirement age (or even worse, you have health or career struggles and lose the ability to support yourself much earlier) and your children spend insane amounts of time worrying about how they’re going to a) afford to support you without destroying their current or future financial stability and/or b) avoid being forced to support you (whether legally, morally, and/or by peer/family pressure).

Ask me how I know, heh.
posted by randomnity at 11:35 AM on October 22, 2015

Coming in late here, but I see that your question was linked to bogleheads.org, with many Millennials weighing in.
posted by Puppet Puppy at 6:17 PM on October 23, 2015