More Time Than Money
The problem with the traditional view of retirement
It was a hot and humid September day in 2011, and I was stuck in a windowless conference room in downtown Atlanta. I had joined Deloitte as a consultant just a few weeks prior, right after earning a finance degree from the University of Tennessee.
It was my first real job, working for the biggest of the “Big Four” accounting and consulting firms, one of the bluest of corporate America’s blue chip companies. A fantastic career launching pad.
Several decades of professional “company man” life laid ahead of me. Or so I thought.
Even though it's been more than 12 years, I could still take you to the exact spot in that stuffy, windowless room where I asked a question that would change the trajectory of my life.
Pondering existential questions certainly wasn’t on the agenda that day. They don't let new hires do much serious work in the first few months – and for good reason, I had no clue what I was doing – so instead of client work, I was getting caught up on the impossibly long list of new hire tasks.
This included signing up for a 401(k) retirement plan.
No biggie for a finance major, right? But surprisingly, the concept of retirement wasn’t included in my business school education. So I found myself many pages deep in a Google search learning the difference between a traditional 401(k) and a Roth 401(k), since Deloitte offered both.
This was when I came across a curious statement. It was something like "if you expect your income to be less in retirement than while you're working, go with the traditional option over the Roth." And that's when I asked myself the life-altering question:
"Why would I want to make less money when I’m retired?"
The whole idea sounded absurd to me. I assumed I was missing something or just didn't understand the intricacies of grown-up life. The prize for decades of hard work was cutting back on your lifestyle and pinching pennies?
I wanted no part of that.
I also didn’t have the time to sort all of this out since I needed to choose a retirement plan by the end of the week. But the question stayed with me over the next few years.
And in 2018, two seemingly unrelated events in my life helped things finally make sense:
I watched my own grandmother outlive her retirement money
I read the book Rich Dad Poor Dad
That’s when I realized the entire traditional view of retirement is horribly misguided.
The premise is simple: work a job you love, save a bit, let the stock market do its thing, then start spending down your nest egg once you’re 65. If you’re conservative with your spending, they say, it’s unlikely that you’ll run out of money.
But real life usually ends up much more messy.
You’re underpaid at your job. You get laid off. Massive inflation reduces how much you can save each month. An unexpected medical crisis makes you dip into your retirement savings. You retire at the beginning of a recession and a stock market crash decimates your nest egg.
The list goes on and on.
For the traditional view of retirement to actually fulfill its promises, you have to live 40 perfect years, never once seeing the ugly side of life. And the chances of that happening are more or less zero.
The more common outcome is a life in retirement characterized by extreme frugality and fear. A recent report by Cerulli Associates found 58% of people in or near retirement say their top fear is running out of money. This makes sense given that the traditional view of retirement is to draw down a nest egg of savings. It’s terrifying to watch your account balance get smaller each month. And a horrible way to live the final few decades of your life.
In 2018, I watched my mom and her siblings forced into decisions about my grandmother’s care and quality of life based solely on what my grandmother’s dwindling retirement savings account could support.
This was the final straw for me, solidifying that the traditional retirement path is a terrible one, so I set out searching for an alternative. And what I found surprised me with its simplicity.
Instead of “saving for retirement,” the better path is acquiring real, tangible, cash-flowing assets that appreciate in value over time.
And the best example of this is rental real estate.
It’s tangible – you can reach out and touch it
It produces cash flow – tenants pay rent each month
It appreciates in value – properties in strong markets become worth more and more
In Rich Dad Poor Dad, Robert Kiyosaki says that wealth isn’t measured in money, it’s measured in time:
Wealth is a person’s ability to survive so many number of days forward—or, if I stopped working today, how long could I survive?
Using this definition, you technically reach retirement when the cash flow from the assets you own covers all of your living expenses. And the best part is that you don’t have to sell the assets for income, like in a traditional retirement portfolio. This virtually eliminates the possibility of outliving your money.
I realize this is contrarian advice. Sadly, Wall Street has invested billions over decades to convince everyone that buying stocks and mutual funds in a 401(k) or IRA is the only path to retirement. And many people I talk to bristle at the idea of not following this conventional path. I hear comments like “it’s worked for millions of other people, what’s the problem?”
The problem is that it hasn’t worked as well as they think. They haven’t seen the sleepless nights of those who worry if they’re spending too much, or those who go into a panic at the smallest drop of the stock market. They haven’t seriously contemplated what life looks like when medical decisions are made based on what little they can afford and not what they actually need.
But true, lasting wealth is very much within reach for those who can tune out Wall Street’s self-serving advice and overcome their fear of being different. Dave Zook, known as “the real asset investor” has a saying that sums this up well:
You can be conventional or you can be wealthy. Pick one.
Personally, I’ve decided that I want to be wealthy. Not necessarily private jet wealth (although I would be ok with that), but the Robert Kiyosaki definition, and I’m diligently working to acquire enough cash-flowing assets to cover my family’s living expenses both now and decades into the future.
Admittedly, this path isn’t easy. It’s filled with strange looks, questions, and the occasional jeer from those comfortable following conventional advice and adhering to the traditional view of retirement. But I’ve seen firsthand that conventional advice doesn’t guarantee an easy journey or comfortable outcome.
Kiyosaki says that “the fear of being different keeps most people from seeking new ways to solve their problems.” On that day in September 2011, I had no idea I was asking a question that would make me different. But sure I’m glad that I did.
Playing the long game!