Generation X is struggling to save for retirement:
Given that more than one in four millennials still live with their parents or spouse’s parents, it shouldn’t come as a great shock to learn that almost half haven’t saved a penny for retirement.
But members of Generation X (aged 37 to 52) are also struggling to save for retirement and the tighter timeline is causing them stress, according to Franklin Templeton Investments Canada’s 2018 Retirement Income Strategies and Expectations (RISE) survey released Thursday.
As a result, more than half of Gen Xers across North America are resigned to retiring later than they would want (56 per cent in Canada, 59 per cent in the U.S.).
The fifth annual online survey included Canadians and Americans across four generations, but “this year we felt in particular that Gen X and the stress of preparing for retirement was the predominant thing coming out of the research,” said Matthew Williams, a Franklin Templeton senior vice-president.
Times have changed. It’s no longer possible to earn a decent salary working for the same company your entire life. It’s no longer economically feasible for one spouse to work and provide for an entire family while the other spouse stays at home attending to domestic duties. Owning a home is a near impossibility for many individuals. Some people are saddled with so much debt that retirement will only be a dream; they will likely die of old age on the job.
However, there are some individuals like Peter Adeney, aka Mr. Money Mustache, (the pseudonym he uses for his website of the same name) who have, through resourcefulness, discipline, and prudence, eradicated all these financial burdens from their lives. He and his family live comfortably, debt-free, and most astounding of all, are retired.
When did Peter retire? At age 30.
It’s hard to believe something like this is possible when one reads articles like the one above describing the plight Generation X is facing (and one that Millennials will eventually have to come to grips with). But, with some creativity, shrewdness, disciplined spending habits, and an on-going commitment to lifestyle optimization, it may be possible.
So, what’s the best course of action for someone in their early twenties to pursue, so they don’t end up like Generation X?
Mr. Money Moustache may be able to provide some useful tips on how to achieve financial freedom and live a life filled with happiness, meaning, and purpose.
Listen to the podcast below for some lessons the proletariat can extract from Peter in order to retire early and no longer be at the mercy of the bourgeois.
While anyone can emulate Peter’s lifestyle to cut down on expenses and increase disposable income, his lessons are particular valuable to a young person, say, fresh out of high school (I’ve elaborated on some points and added my own).
1. Learn a skill that pays a decent salary – this is number one. In order to accumulate enough money to pay for expenses, keep inflation at bay, and grow your wealth, you will need to set aside a considerable amount each month. This can only be done if you have a decent job or career (Peter is a software engineer and sources says he and his wife earned around $130,000 annually). If you earn only enough to pay for your expenses you’ll be working forever. Forget about gender studies, philosophy, sociology, and the like – learn a skill or gain knowledge in something that is valued by society. Don’t necessarily follow your passion. And no, having a university degree is not a prerequisite for a decent paying career.
2. Taking frugality to the extreme is not ideal – money is meant to be spent – and by spent I mean for both needs and wants. Living the life of the stereotypical starving artist (and I mean permanently, not temporarily) is not an appealing prospect. Earn a decent income so you can avoid becoming an involuntary miser. In order to truly live a fulfilling life a certain threshold of income is necessary. While some individuals will have no issue taking a vow of poverty, most won’t, and that probably includes you. Peter makes it clear that he and his family live the type of life they want to live – they don’t sleep in a ditch and wear rags for clothing.
3. Refrain from using debt as much as possible – If you are young and single, your focus should be on earning money, adopting useful skills, and growing your net worth. Don’t purchase an expensive vehicle – get a used car instead. Eschew purchasing a home in favour of renting. Not being tied down in debt allows you unlimited flexibility and mobility. In addition, you will be less dependent on your current employer when you have few or no debt obligations. Fear of losing one’s job is amplified when one is a debt slave.
4. Seek life-affirming and enriching experiences and focus on building relationships instead of acquiring material possessions. If you’re not wealthy don’t purchase luxury vehicles, eat at posh restaurants, spend $5.00 on coffee before your commute to work, etc. It’s nice to treat yourself once in a while, but it’s absolutely necessary to cut back on expenses to accumulate enough money to live off for the rest of your life. Peter says you need approximately 25 times your annual expenditure in order to live without the need to work ever again (he and his wife had $600,000 saved for retirement and a house that was paid off that was worth $200,000). Peter does splurge from time to time, but he can afford to do it and he’s mindful and methodical with his spending decisions.
5. Constantly tinker and optimize. Are there areas where you could be more efficient with your spending and saving?
6. Don’t day trade or engage in risky speculation in the financial markets if you don’t know how to do it and aren’t willing to put in the time to learn. Passive investing works better for most people. You don’t want to endanger your money with foolish trading schemes; you need enough capital to be able to make regular withdrawals and grow the balance at the same time. Guard your money with your life.
7. Don’t drink, smoke, do drugs, or gamble. The fewer bad habits you have the better. All these take a toll on your wallet over time, not to mention your health.
8. Eat well, get enough sleep, and exercise. Being healthy means less money spent on medical bills. Remember, certain illnesses can be financially catastrophic. Reduce the risk of becoming ill.
9. Study the stoics and become indifferent to the pain and suffering that inevitably comes with life. You can’t choose the challenges the world throws your way, but you can control how you react to them.
10. Don’t get caught in the trap of lifestyle inflation. When the economy takes a nosedive you may find yourself jobless and simultaneously deluged with debt and in possession of depreciating assets – not a good scenario. Resist the temptation to upgrade when your income increases.
11. If you retire early like Peter, ensure that you don’t succumb to laziness and hedonism. Focus on things you’re passionate about, have a good reason to wake up every morning, and seek to make a positive impact on the world. Retirement doesn’t mean retiring from life entirely; you can do that when you’re dead.
I highly recommend taking a look at Peter’s website. He’s someone who actually practices what he preaches (he retired before launching his website, so he can’t be accused of being a con artist peddling cliched financial advice). The advice he dispenses is a great antidote to a world filled with maxed-out credit cards, empty retirement accounts, debilitating nine-to-five drudgery, and the worship of superficiality and soulless materialism.