Why Do We Retire?

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As this blog is called “The Long Run”, we like to play the long game. I’m a planner at heart, and not having a plan tends to give me anxiety. So naturally, I’ve always tried to think analytically about the future — where to go to college, what to do for a career, where to live, how much money to save, when to retire, and what retirement will even look like.

And the traditional American life is designed a certain way — we go to school to get a good job to save enough money to buy a house to raise a family and eventually retire so that we don’t have to work or think about any of it anymore. There’s this subtle idea that once we retire, all of our problems ~disappear~.

But why is it this way? For the last few decades, this idea of work 9-5, 5 days a week, until you’re 65 years old, has prevailed. After 65, you’ve presumably saved up a decent amount of money and you’re receiving aid from the federal government in the form of Social Security and Medicare. The whole reason we pay taxes for those things is to support people into retirement.

However, this idea was popularized at time when 1) people didn’t live as long; 2) the working age segment made up a larger portion of the population; and 3) work was, on average, more physically taxing.

So if now people are living longer, the elderly population is ballooning (and the working population is shrinking), and new work opportunities abound, what does it mean for the future of retirement as we know it?

A quick background on retirement

In the grand scheme of human history, retirement as a concept is fairly new. For most of time, people just worked until they died (bummer, I know right?).

In the late 1800s, Otto von Bismarck (a Prussian statesman) came up with what was a radical idea at its time — government-run financial support for old people. At that time, most people either worked on a farm or, if you were wealthy, managed a farm. Under pressure from political opponents, von Bismarck argued that people who were “disabled from work by age and invalidity” should be entitled to care from the state, rather than having to work.

Retirement under von Bismarck’s rule was originally for people over the age of 70 — that is, if they lived that long.

Fast forward about 50 years to 1935, and Social Security was passed in the US. Corporations decided they would pay for part of people’s retirements, hoping it would incentivize them to stay with the company longer, and employee pension plans became the norm.

Retirement has been a carrot dangled in front of the working people, a promise from both corporations and the government that if you are a good, obedient employee, you can relax and have free time when you’re older.

For the decades that followed the passing of Social Security, most people spent their entire careers at one company. This idea is radically different from today, where job hopping across several different employers is common.

Then, in 1978, the 401(k) was created. The original employee pensions shifted to “contribution plans,” and the investment and management risk went from the institution to the individual.

Given how frequently this system has changed, coupled with the fact that the US population is growing older, and that the SSA’s trust fund reserves are projected to be depleted in 2034, it’s worth young people asking themselves a few questions — Do I want to “retire” in the formal sense? When? And what might “retirement” look like in the future?

In any case, we should probably assume that in the future, young people are going to need to save more if they want to retire as early as their parents and grandparents. Otherwise, we need to change how we think about “retirement” completely.

Common reasons for retiring

To consider whether formal retirement makes sense, it’s worth questioning why people retire to begin with. In general, most people today retire for some combination of three reasons:

1. They no longer want to work.

2. They are no longer physically/mentally able to work.

3. They want to do more fulfilling things with their time.

The first reason made sense in a time when work was demanding, exhausting, or just plain unenjoyable.

The second reason made sense when people aged faster and died earlier.

The third reason makes sense if you don’t find fulfillment in your work.

The common thread here? If we’re not driven by some sort of purpose and don’t enjoy the life we’re living in our “working years,” then sure, traditional retirement is a natural progression.

But is it possible to create a life that we don’t need to escape from by retiring? In the case of the third reason above, why wait until we’re old, when our lives have changed and our health has deteriorated to do more fulfilling things with our time?

Building a life we don’t feel the need to retire from

Rather than splitting our lives into two parts — pre-retirement and post-retirement — how can we blend the two together in a way that makes both phases more meaningful?

Finding purpose-driven work is one of the primary indicators of meaning in life. Even in the traditional system, we spend roughly 40 years of our lives working.

Combined with the fact that the retirement system is bound to change again, it’s probably worth at least thinking about how we can design a life for ourselves so that we aren’t counting down the years until retirement.

I’m not advocating for scrapping retirement entirely. In fact, for many people, the golden years are some of the happiest of their lives.

But planning for retirement, especially with so much uncertainty and the inability to predict what the future will look like (both for ourselves and the system at-large), can be stressful. If we are content with the lives we live in our working years, such that we aren’t needing to leave, that planning process becomes a lot less scary.

Retirement is really just a permanent “break” from work. If we can 1) seek purpose-driven work, and 2) build in temporary “breaks”, we’re less pressured to need that permanent break that retirement serves, and maybe we can rest more easily postponing it.

It might be taking more long weekends to see distant friends. Maybe it’s being okay with taking a week or two off during the holidays to be with family. Or maybe it’s just taking some time in the middle of the day to do something that’s not work, so that we can mentally reset.

Just look at several countries in Europe, where the time off is nearly double that of the US. In these countries, cultural norms support temporary breaks throughout working years.

Extending our “working longevity”

Working for longer, well into our 70s and 80s, seems much more viable if we’re living a lifestyle that is sustainable, one where we’re working hard, but building in natural micro-breaks and taking care of our health.

Whatever it is, building in protective measures to extend our “working longevity” and avoiding burnout is crucial, and it actually reduces the pressure of not having enough money to retire so soon

While this concept sounds great in theory, a lot of us work in roles that are location-dependent and are tied to a schedule of other people. And that’s totally okay — we should work hard. But we should work hard on the right things.

The other piece to this is that there’s no one-size-fits-all “ideal lifestyle.” For some people, their ideal life could be working 80 hour workweeks at an investment bank, and for others, it could be doing occasional freelance developer work, or being a barista at a local coffee shop. And those ideal lifestyles will probably change over time as our commitments and priorities change. A 23 year old living in a big city’s version of their ideal lifestyle is far different from that of a married 45 year old with two children living in a small town.

However, if we use the concept of our own personal ideal lifestyle as a guiding north star, we can start to establish routines & habits that get us closer to it one day at a time. The ideal lifestyle is more about one in which we find meaning and long-term fulfillment, rather than fleeting moments of short-term happiness.

Meaningful work and relationships, rather than one-off dopamine rushes. Sitting on a beach sipping pina coladas might be fun for a week, but spending 30 years doing it sounds miserable.

Instant gratification isn’t viable long-term, but experiences that are future-positive, things that we look back on and enjoy after the fact, pay “memory dividends” long into the future. These experiences might require a little upfront work (like training for a marathon, investing effort in relationships, or grinding at your job in the early years), but they’re more sustainable and fulfilling over the long run.

It’s easy to say “do what you love,” but the reality is that determining when to retire is highly dependent on our financial ability to do so. However, that financial component depends on how we actually want to spend those retirement years.

In Elizabeth Dunn and Michael Norton’s book Happy Money, they find the 5 biggest ways spending money can make you happier are:

1. Buy experiences (not things)

2. Make it a treat (keep it in moderation)

3. Buy time (pay up for convenience)

4. Pay now and consume later (avoid debt)

5. Invest in others (helping others, time with loved ones, volunteering, etc.)

Traveling more, putting away our phones, getting outside, spending time with friends. Not material things.

This is my main gripe with the F.I.R.E. movement — it assumes achieving financial success as early as possible will solve our problems. Having a sufficient amount of money to support a life that makes you happy is definitely a good thing. But having a lot of money won’t matter without meaningful work and relationships.

The goal shouldn’t be a financial number that dictates when we can retire. Rather, we should strive towards creating a life we don’t feel a desire to retire from. A life rich in experiences and relationships, not purely dollars at the expense of those experiences and relationships.

When it’s all said and done, do you want to look back on life where you pursued something you cared about and enjoyed memories & experiences with loved ones? Or will you be happy you didn’t waste your money and time on such trivial pursuits, such that you could retire a few years earlier?

Only when we realize there’s no final stop on the train do we find out that we’ve already arrived.

Retirement isn’t the goal. Meaningful work and relationships are.

-Owen

Fresh Finds

Should Young People Save Less & Spend More? (A Wealth of Common Sense)

Article | 5 minutes

Timely piece by Ben on the question a lot of young people grapple with — the right amount of saving vs. spending. Yes, typically our income increases over time, but it can be extremely difficult to flip the switch from “spending mode” to “saving mode” as we grow older, particularly as our lifestyle becomes more expensive. Psychologically, it will actually feel like a loss of income.

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