The other day Joe over at Personal Finance by the book, wrote a good article about the reasons you shouldn’t use your 401K to pay off credit card debt. He had some very good points, my two favorites being #1 the penalties you have to pay come tax time and #2, the is that paying off a credit card doesn’t actually change your behavior and prevent you from wracking it up a second time.
I’m personally scared of being a destitute granny, so I do my best to save a little every paycheck into my 401K. Plus, penalties and paying taxes were always a big enough deterrent that I never thought to use it for any big purchases. That money was something the much older and wrinklier me is supposed to use for bingo night and gardening supplies.
Save for Your Invalid Older Self
I still think that too much optimism can be bad for personal finances. There are a lot of very bright people I know that either don’t save at all or just put money into their 401K’s to get the match and tap it on a regular basis. The most common thing I hear from them is: “I’m never going to retire. I’ll just keep working until I die.” Some of these people do enjoy their jobs, so I see some of the logic in that, but the pessimist me says “what if you get sick or disabled, and you can’t work, what then?”
My uncle was as tough as they get. I mean the guy survived for 5 years in a slave labor camp in Nazi Germany. Yet, he didn’t think he was going to “work til I’m dead.” He was a roofer, so it was tough work. Cancer eventually took his life and there’s no way he could have been up on a roof with cancer no matter how much of a bad ass he was. He knew that savings was key and often told me that it’s no good being old. Like my mom, he was super strong and aging was hard on him because he was used to being “strong like bull.”
In fact, according to the CDC, only 2% of the 25% people a year who die from heart disease are lucky enough to die instantly from Heart Failure. Most of the causes of death are long illnesses, like cancer, stoke, dementia, or diabetes. Then there’s also the general loss of mobility and pain from arthritis. If you’re banking on being one of those people who dies instantly, I’m sorry to say that the odds are greatly against you.
The last thing you want to have to be doing is standing around all day on your arthritic knees and bagging groceries. My uncle spent the last 20 years of his life fishing, gardening, and foraging for berries and mushrooms. He also liked collecting scrap wood from the dump to heat his house. It was a humble retirement, but a good one. After all, he was a farmer like my mom and they were used to being very self reliant when it came to food, heat and shelter.
Savings Even a Little Will Help
If you’re nearing retirement and still haven’t started saving, there is some hope. Believe it or not, I think my aunt and uncle managed to live mostly off of their social security and reparations checks. It wasn’t til the very end when they both got very sick and needed around the clock care that they needed extra money. I don’t think they tapped their savings for themselves at all when they were well. They only gave money out for their children’s needs (which eventually would lead to a tragic story of betrayal best saved for another day).
So in closing, if you haven’t already, please start those frugal habits now. Someday you will be living on a reduced monthly income and you’ll be thankful for the skills you’ve learned. I hope this article wasn’t too much of a downer but I think it’s just too easy to put off retirement. Saving for retirement does two things. It helps you learn to live on less now, and it gives you something for later. What’s there not to love?