4Tests Blog

Retirement planning might not be at the top of your mind as you work your way through college. Who can blame you if it isn’t? Other generations have made such a wreck of things economically that the likelihood of “retiring” in the Boomer sense of the word is likely out of grasp. That said, we’re here to tell you that you don’t have to feel as hopeless about the possibilities as you think.

What does it take? A simple redefining of what retirement actually is and being aware of the following 10 realities as you get ready to work towards your specific version of retirement. As you might surmise, you can never start too soon, and yes, that includes freshman year. Let’s begin!

1. The Current Retirement System Is Broken

A long time ago in a galaxy that might as well have been far, far away, economists figured that $1 million would be plenty to last you the rest of your life. Once you reached retirement age, that is. Many bubbles have burst and housings have crisised since then, however. The rate of wage growth has not kept up with the cost of goods and services.

In other words, things cost more and you make less money. If you’re targeting a mythical retirement number by the time you reach age 67 (or whatever they push it to by the time you’re old enough to draw Social Security), then you’re going to need to aim higher. Of course, this assumes you don’t plan to work in retirement. If you do plan to stay active once reaching retirement age, then the number isn’t quite as high. The days of retiring to a sofa and living out your years without earning on $1 million, however, are over.

2. Debt Management Is As Important As Earning Potential

All is not lost, though. Old ideas about retirement may be broken. Social Security might not be there for you when you’re old enough to retire. And even if it is, your money isn’t going to be worth nearly as much as if you were investing it yourself into a stock market index fund that follows the S&P 500. Such index funds generally draw about 8 percent annual returns, beating inflation by 5-6 percent.

Social Security is diminishing and could be completely gone by 2030 if not overhauled in a major way. That’s because politicians have been raiding it for about 30 years, people are living longer, and birthrates are going down. Since younger generations have always paid for the older ones, this puts a tremendous pressure on you to keep the system intact.

That said, if you plan not to continue working in retirement — and even if you’d like to keep working — responsible management of debt and living expenses is crucial. Borrow as little as possible to attend college. Buy used cars (preferably paying cash so you’re not locked into paying interest). Delay home ownership, or buy only the amount of house you can afford (not what the bank says you can afford). Don’t have children until you’re well-established. Last but not least, don’t even think of using credit cards. If you need a credit card with its high interest rate to buy something, then you can’t afford it. Following this path into adulthood will help you manage your debt and living expenses effectively.

3. College Graduates Still Earn More

It’s frustrating having to pay an arm and a leg for college with no guarantees of a job afterward. We get it. But keep in mind that college grads still outperform high school graduates in earnings. You will make more money if you go to college than if you didn’t. Unless…

4. There Are Other Options

Trade schools are coming on strong in our skills-based economy. They help you stay on top of technological advancements with greater nimbleness. They also allow you to keep your continuing education costs low, and they make it easier to spread out into side hustles, gigs, and running your own business.

Explore these options if you’re not going to college. The important thing is that you don’t expect your GED or high school diploma to do all your earning for you.

5. Social Security Will Probably Still Be There, But…

Okay, we’ve already touched on this a bit (with dire predictions). That said, politicians have been scaring older generations about dismantling Social Security for years, and they will continue to frighten the older crowds as long as it makes their political opponents look like boogeymen.

For that reason, Social Security probably will exist in some form by the time you’re old enough to draw it, but you won’t be able to count on it to cover your bills and expenses without additional help. Not unless something changes drastically. You’ll need to invest your money in more proven instruments.

6. You Can Retire Sooner Than You Think

Don’t fret if this all seems too bleak. It actually gives you a tremendous goal to work towards. We’re talking about lifestyle design. In other words, you can create the kind of freedom other generations have had to wait until their sixties for, and you can do it 20 or even 30 years earlier.

The key is to take control of your most valuable commodity. That would be time. As long as you’re able to control expenses and not put all your eggs in one job basket, opting instead for multiple streams of income as soon as you can establish them, then you’ll always be able to call most of the shots in your life. Look into investments, side gigs, starting your own business, and getting a regular job. All these things combined will ensure you never get overextended into one revenue stream, and it will give you more control over how you make money.

7. Your Investments Will Determine Whether You Can Retire

What are you ready to invest in? The answer better be something other than the bank. No bank will pay the kind of interest that you need to earn to get to retirement. That means looking to investments that are sometimes seen as “riskier.” Be careful with that word, though.

Many investments considered “riskier” have a longer and much more well-proven track record than the ones you see advertised at the various branches around town. Ideally, you want an investment that’s going to beat inflation in each year’s returns and give you a little more on top of that. If you’re not beating inflation, then your money lacks the buying power it had in past years as time moves on.

Be willing to take good, calculated risks through playing stocks and mutual funds. In time, you will realize much higher rates of return. And the data is out there to back it up.

8. Entrepreneurship Will Serve You Well

Investing wisely isn’t the only thing you should be doing now in order to make retirement possible. So is side hustling. Side hustling is the act of picking up smaller jobs as an independently paid contractor or starting your own business.

The more side income you can make, the higher the percentage of the annual salary you’ll make for the position in which you are working. Whatever you come up with, let the entrepreneurial spirit within you take control and think outside the box. Look for things to do that you are passionate about to sustain your energy throughout the process.

9. Uncle Sam Will Find You

Pay your taxes. Even famous people don’t get this from time to time. Who can forget Willie Nelson’s famous tax woes, for instance? The legendary country music star failed to pay enough in taxes and amassed a $6 million debt that would grow in interest and penalties to $16.7 million before all was said and done. Tired of him not making payments, the Internal Revenue Service eventually raided Nelson’s home and auctioned off much of his stuff.

It also cut a deal with him to record an album with a portion of proceeds going toward paying down his debt. Throw in a settlement Nelson reached with his accounting firm for setting him up with a bad tax shelter in the first place, and he would be able to pay off the debt eventually. You can’t be guaranteed Nelson’s stardom, though.

Falling into arrears with the IRS can be crippling for the common person, though the agency is generally good about working with you. Still, there’s nothing fun about a massive tax burden. So, give Uncle Sam his due. Know what your tax accountant is doing with your return, or do the return yourself if you feel comfortable enough about it.

10. Teamwork and Generosity Will Take You Further

Working with other people and being your most generous self: these two things can give you so much out of life. By being the type of person who’s willing to stop everything he or she is doing for a friend, you have the ability to make valuable future connections and leave hiring managers with feelings of good will. Keep this in mind as you expand your horizons.

It Is Never Too Soon to Think About Retirement Planning

We hope this brief look at the attitudes, tools, and mindsets for retirement planning have given you a good idea of the path you need to be on in life from this day forward. Thank you for dropping by!

If we can help you with any more specific questions that you may be having, let us know. Share your thoughts in the comments section below!

[Featured Image by Quote Inspector]