Weekend Reading – Young people shouldn’t save for retirement edition
Welcome to a new Weekend Reading edition, citing an older economic model from a Nobel Prize winner that suggests young people shouldn’t save for retirement – at all.
More on that in a bit!
First up, a few recent articles in case you missed them!
Thanks to a reader question, I was inspired to write about how to split money with your partner.
What? Young people shouldn’t save for retirement?
According to an economic model from the 1950s, reaffirmed by a recent 2022 study in The Journal of Retirement, yes.
That study points to a life-cycle model (below) in this MarketWatch article whereby essentially younger workers are better served to allocate their human capital resources over their lifetimes with the aim of avoiding sharp changes in their standard of living.
The life-cycle model and research plays out this way:
- High income younger workers will need to save but only as they approach middle-age, as wage growth occurs.
- Middle-income younger workers will also need to save, simply not that much and nothing before their 30s.
- Lower-income younger workers don’t need to save for retirement at all, assuming their standard of living doesn’t change much over time and/or they will take advantage of maximum government benefits as a senior anyhow.
The research points to a fundamental concept that one needs to save for retirement (in the first place) because you want to have the same standard of living when you’re not working (as you did while you were working).
From the article:
“The economic model would suggest ‘Hey, it’s not smart to live really high in the years when you’re working and really low when you’re retired,’” he said. “And so, you try to smooth that out. You want to save when you have relatively high income to support yourself when you have relatively low income. That’s really the core of the life-cycle model.”
But there are some big assumptions the researchers seemed to make, or, the MarketWatch article simply didn’t bother covering in more detail:
- The power of compounding is in fact an eighth wonder of the world and certainly savings for investment purposes in stocks/equities – sooner than later, versus just an after-inflation interest rate close to 0% – is a far better way to invest for retirement that most 20-somethings should absolutely wrap their brains around.
- Nobody knows how long you may live and/or what your health needs may be as you age. When it comes to living in the United States especially, about healthcare, best be wealthy to afford health insurance or cover minor health needs or otherwise potentially face financial ruin at some point.
- While government benefits are fine and good, in any developed country including Canada, I would be worried about changes to government policies that update or manipulate the majority of your retirement income if you didn’t save early nor often.
Should young people save for retirement?
But I’m biased.
I’ve been saving and investing since I was 21 and I continue to save and invest decades later.
I’ve seen the power of compounding work right in front of me, in our bank account.
I prefer to have multiple income streams, including income from my portfolio, as I approach semi-retirement. My financial plan has always included the desire to work on my own terms.
Canadian government benefits such as our Canada Pension Plan (CPP) and Old Age Security (OAS) should not be disregarded in any retirement income planning exercise, however, at the same time, I would not want to rely on our government for making my retirement dreams come true.
What’s your take on when to start saving for retirement? Is your 20s too soon? What about playing catch-up in your 30s and 40s? Would love to hear your thoughts!
More Weekend Reading – Young people shouldn’t save for retirement edition…
Congrats to 20-something Financial Mechanic, who as an engineer, worked hard, saved a bunch and actually semi-retired beyond some recent pet sitting duties. Incredible.
The Dividend Guy released his August dividend income report, including his list of favourite stocks he holds.
PWL Capital wrote about not giving up on global diversification.
Another reader recently asked me: what would you do with a lump sum of money?
Kyle Prevost on Million Dollar Journey wondered how much you are likely to spend in retirement in Canada?
Come see me speak at this year’s Canadian Financial Summit with Kyle!
Back for 2022 – I’ll be one of the speakers again this year at the Canadian Financial Summit, sharing my thoughts alongside established personal finance experts such as Rob Carrick from the Globe and Mail, the Warren Buffett of Canada (Peter Hodson), and many others!!
Some more info about the talks, including mine on the Canadian dividend tax credit and how that factors into my semi-retirement drawdown plan!
- The Summit is once again, 100% online so you can stream all the talks right from your computer/tablet/phone.
- You don’t need to go anywhere or buy anything.
- Once again – this event is completely FREE to attend. However, if you can’t make it for the scheduled date/time, you will be given the option to purchase a special any-time, anywhere, Premium All Access Pass that will allow you stream the entire conference whenever fits you best.
I encourage you to get that All Access Pass to watch all speakers, all topics, whenever you wish!!
That’s it. No paperwork. Just watch the Summit wherever, whenever!!
Just head on over to the Canadian Financial Summit, sign up for free, AND be automatically entered to win one of the free Premium All Access Passes the team will be giving away when the event goes LIVE on October 12th.
Definitely forward this email to any friends, family, and co-workers that may be interested so that they can get the free tickets too!!
(In the near future, they’ll be turning the free tickets into a pass that you’ll need to pay to access, so even if you’re just considering streaming some of the talks, at least sign up to it now so that you can secure your free access!)
More Weekend Reading…
Loved the “Stable Dividend” portfolio by Norm Rothery (subscribers only).
That “Stable Dividend” portfolio includes a mix of Canadian telco stocks, utility stocks (including Fortis that raised their dividend by 6% this week!), and some financial stocks. From Norm:
“While the Stable Dividend portfolio does not offer perfect protection against downturns, it has fared better than the index on most occasions. It also tends to hold utilities, telecoms and other seasoned firms with generous dividend yields that are likely to survive all but the worst of calamities. That said, disappointments from individual stocks should be expected to occur from time to time.”
With the stock market in a major downward mess, Dale Roberts asked his readers in his Sunday Reads: what stocks and ETFs are you buying?
For the most part, I just keep buying!
Last but not least, thanks to Accidentally Retired for including yours truly in this latest FIRE-insights study Q&A with many bloggers. Very interesting answers about investors’ sentiment!
Have a great weekend!