Retirement Savings: You can’t work forever

by Sandy L on April 5, 2011

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?

{ 25 comments… read them below or add one }

Nicole April 5, 2011 at 7:54 AM


Especially with the decline in defined benefit pensions.


Sandy L April 5, 2011 at 7:10 PM

I actually have a pension..I completely ignore that as part of my savings plan. I dunno, but money that’s out of my direct control isn’t something that I want to bank on. Same with social security. The givers of the money can change their mind or go bankrupt at any time and what is a girl to do?


101 Centavos April 7, 2011 at 7:09 AM

I agree on this outlook. I also have a pension at my present employer, but I’m not counting on neither it nor Social Security to be around in 15 or 20 years’ time.


Jacq @ Single Mom Rich Mom April 5, 2011 at 11:50 AM

Yeah, I have a friend that’s my age that drives me nuts with the “live for today” philosophy. They’re also extremely optimistic even when history has proven that the optimism is unwarranted. They think I plan to fail, but like I told them I don’t plan to fail, I’m just prepared for it to happen. Possibly over-prepared. 🙂

I do think that some people will re-learn again how to live on minimum wage levels of income. Only they’ll have to because that’s all the old age pension check brings in, even supplemented with a few bucks from working part-time. I wonder if some of us will just piss away the money our parents and grandparents made / accumulated leaving nothing for our own kids too. I can see that happening as well. Yikes, I feel like a downer too! 😛


Sandy L April 5, 2011 at 7:23 PM

Jacq – yeah, I see a lot of grannies in retail everywhere. I’m thinking I’m going to be pretty tired of working by then. I never thought this might be the first generation retiring without pensions.


Jacq April 5, 2011 at 8:18 PM

Well… there’s always the possibility that a lot of those seniors weren’t working full-time out of the home their entire lives, especially if they stayed at home to raise children – and maybe beyond. So maybe it’s not such a down-side as it would be for someone else. If you don’t have the money to travel or have hobbies, you might as well be working I guess. At least they get out of the house and do something. Personally, I think I would have a hard time going from making a 6 figure income down to minimum wage, just the ego talking there. Having said that, I’ve always wanted to cook for people – lots and lots of people – so maybe there’s a line cook job in my future somewhere. 🙂


Sandy L April 6, 2011 at 7:17 AM

Jacq – that’s true. I guess it wouldn’t be so bad if you didn’t work outside the home for the first 50 years of your life. Then it might be a welcome change.


Laura April 5, 2011 at 12:08 PM

I say a little thank you nearly every day that I paid into a pension..even when I was in debt! Because the money was taken from my salary I didn’t have a chance to spend it…thankfully!


Sandy L April 5, 2011 at 7:25 PM

Laura -every little bit counts.


kh April 5, 2011 at 12:18 PM

This is one of the things that surprises me most by a lot of PF bloggers – especially younger ones. They’re so money savvy and smart and yet they’ll throw every penny they have at a 7% student loan and not contribute a penny to any kind of retirement fund. It’s like they’re so focused on that immediate 7% that they can’t see the whole financial forest in front of them.

If you take a $20k student loan at 7% paid for 10 years, you will pay $7,619 in interest. So if you pour all your available money into that loan to pay it off 5 years earlier, you’ll save $3,971 in interest.

If you start putting $3000 a year into a very basic IRA when you’re 25, you’ll save $232,989 by the time you reach 65. If you put that off until you’re 30 in order to pay off those student loans, your retirement savings drops to $186,827.

Is it really worth it to pay off those student loans early and lose out on $42k worth of retirement savings to save $3,971 in interest?


Sandy L April 5, 2011 at 7:28 PM

KH – I guess I’m guilty of this. I couldn’t wait to pay off my student loans but I did it at the expense of saving for a house. I had a fundamental issue with getting into more debt before clearing my personal ones first. My pension/retirement always came first though.


StackingCash April 7, 2011 at 3:24 AM

You throw those numbers around like it’s concrete. I hate when financial planners or those who think they know the future do that. Be wary of where your information comes from.


kh April 7, 2011 at 8:09 AM

Not sure what you’re getting at here. Concrete? What? You can’t argue with the numbers. You can make a case for different scenarios, absolutely. But the numbers are what they are.


StackingCash April 7, 2011 at 11:28 AM

You use your numbers as if you are guaranteeing a rate of return which is flawed. If one’s asset allocation is not good in the retirement vehicle, your numbers are going to be a straight out lie. Most people don’t realize that you can lose in the stock market. Historic performance of a mutual fund or stock does not guarantee future performance.


kh April 7, 2011 at 11:44 AM

I picked a very basic, simple 3% IRA to make my figures. “The retirement vehicle” as you put it is the most basic form of retirement savings there is. There are no wonky numbers there from the stock market or mutual funds, so please don’t play false logic games with what I wrote.

Even if you take a very basic 1% certificate of deposit that you can find at any bank, you’re still talking about $28,307.53 interest earned over 35 years vs. $37,500.98 earned over 40 years. So you’re still losing close to $10k in long term retirement earnings in order to save $3900 in interest. That’s a net loss of $6k.

Run the numbers yourself. There is no way to come out ahead by paying off a student loan early at the expense of investing in your retirement. Not unless you’re talking about a vastly larger amount in student loans than most people have.

retirebyforty April 5, 2011 at 2:51 PM

It’s hard to save for retirement when you’re struggling with the bills. My parent never saved much for retirement and my dad is still working part time at his shop. They made a lot of investments in their kids though and we help out as much as we could. 🙂
The problem with saying you like your job is later on, you may not like you job anymore. It’s better to save as much as you can now for the rainy day. People our age also can’t depend on social security so it’s even more difficult. I think many people will have to get used to a much cheaper lifestyle once they retire, it’s not going to be pretty.


Sandy L April 5, 2011 at 7:32 PM

Rb40- My mom spent a lot on me too but now we spend on her, so I’m hoping it was a good investment for her. I had relatives that did the same thing though and sometimes a child never learns to fend for themselves. It’s tough to know how much to give.

I think in the states, most people were banking on working a certain type of job til retirement but then a bunch of them went offshore…now what? Keeping a job isn’t always in your control either.


Kayla April 5, 2011 at 6:17 PM

I am reading a book now called “Aging Gracefully: Ideas to Improve Retirement Security in America.” It’s a collection of essays (one by Peter Orszag- special assistant to the president for economic policy during the Clinton administration) that gives ideas for promoting greater retirement savings among Americans. It has some great suggestions! You (and your readers) should check it out!


Niki April 5, 2011 at 8:21 PM

I think about this all the time. We contribute a little at this moment, but I want to be maxing out Roths and TSPs as soon as we are able.


Squirrelers April 5, 2011 at 8:40 PM

Totally agree. This scenario has always been my biggest motivator – being a broke grandpa someday. I’ve seen eye rolls when I describe the need to save for such situations, but I’m confident this is the right approach. Nobody wants to have a broken down body and dated skills, while concurrently really needed money.


Sandy L April 6, 2011 at 7:53 AM

Squirreler – Yeah, I have the benefit of knowing how to live on a real bare bones budget (thanks babci), so when I got a decent paying job, it was really easy to skim some off the top and still feel like I had a major lifestyle upgrade. Saving for tomorrow doesn’t feel like I’m depriving my today self at all. I realize not everyone is in that position, but I’m glad that I could do it from the get go.


Money Reasons April 6, 2011 at 2:13 PM

Great story, and good point.

I see co-workers borrow and even worse cash out their 401(k)s all the time too. I know some people say buy and hold is dead. but you know what… I checked my 401k balance from as early as my companies 401k provider started tracking the records for perf stats (2003), and I’m up 8.5% and rising, and it would be higher if they went back to 2000. This isn’t great but as long as the market keeps recovering, it should be good!

Personally, I’d rather be overly careful with the money I have saved up for retirement than short…

Great honest and helpful article, even if it is dark… 🙂


101 Centavos April 7, 2011 at 7:11 AM

I like your uncle’s idea of retirement. Sounds about what I’d like to do. Like my mother-in-law, we’re planning on some strong insurance for end-of-life care, if it comes to that.


Kay Lynn @ Bucksome Boomer April 9, 2011 at 5:33 AM

Thanks for making this point. I smile when I hear people say they’re never going to retire. They don’t know that their body may wear out.

Many people can’t even work until full retirement age due to health issues, so although there are exceptions it is not realistic to plan on never retiring.


Financial Samurai April 9, 2011 at 11:10 AM

The government underestimates how much people 20-50 have WRITTEN OFF getting a pension. Which means they should just raise the pension receiving age to 70 and save us all!



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