“Eschatological Investing or Eschewing Apocalypse: Investing for a Future You Choose”
I became licensed to sell securities in 1998, a great time to be investing in stocks and bonds. Qualcomm was going to $1000 and Cisco was going to be worth more than most countries. That lasted until March 2000 when the dot.com boom went bust. My interests then took me to retirement plans. For over ten years I advised companies on pension benefits as an advisor for UBS. Defined contributions plans, 401(k), 403(b) 457 and profit sharing plans, to name a few, are a part of most companies’ benefit programs. The defined benefit plan, the traditional pension plan, is not as popular. Working with companies to offer plans that makes sense, and are embraced by employees, is where I have focused my efforts with Social(k). Since 1999 I offered a 401(k) platform with more socially responsible funds than any other provider. In 2005 I greatly expanded the socially responsible fund offerings on the platform and branded it Social(k).
During that time I have heard a lot of reasons why someone is not interested in a retirement plan. The newest batch actually considers the world ending in our lifetime a valid reason to avoid putting a little extra cash away for later in life. Let’s examine reasons for not investing for retirement. Then we will look at how one’s relationship with money changes over time and how to use that to your advantage.
Who has time for a retirement plan when the world is collapsing?
“Global climate change means we will be drowned, frozen or dehydrated before I reach retirement age, the last thing I need to do is put money away for a future that may not exist.”
“The Mayan calendar says we are done by 2012! I’ll enroll in 2013, thank you.”
“Nut jobs are going to drive this country into the ground, I don’t need a 401(k) I need an A(k)– as in AK-47!”
“Why bother saving for retirement, I’m 300 lbs overweight and will be dead by 50.”
Okay, maybe those excuses are a little extreme. How about these?
“As soon as I get a chance.”
“When I get my next raise.”
“When they plug the well in the gulf!” (which has been done…)
Finally, the ever-popular “market timing” excuses:
“The market is too overvalued. I will buy in during the next drop.” (Good luck having the intestinal fortitude to buy when the market is collapsing.)
“The market is tanking, I will get in after it recovers.” (You will miss the early returns and prices will rebound before you step up to buy.)
The arguments against contributing to a retirement plan seem to come down to:
The world is going to end; I have no money; The market is too high or too low.
Let’s look closer at each:
World is going to end: This is easy. It has not ended after 4 billion years. And every generation has its’ plagues. In Medieval times it was the Black Plague. In the Cold War, it was the possibility of nuclear annihilation. Somehow life survives. Isn’t it a little narcissistic to think that you will witness the end of days? Many of our everyday decisions are motivated by the fact that we plan on being here tomorrow. Live like you will be here tomorrow, and don’t forget that tomorrow will be more enjoyable with a few dollars in your accounts. If the world as we know it ends in our lifetimes, a lack of money will be the least of our worries.
No money: We never have enough money to do what we want. The fortunate who budget have figured out how to have a few dollars on hand for projects—but it can often seem like a person either has that skill or doesn’t. Saving can be learned –and it’s easy– but we all have to start somewhere. Use payroll deduction to automatically take 2% of your paycheck, especially if there is a match from your employer; enroll in the company plan, and watch it grow. Soon you’ll have a decent start on a retirement fund because it can build up fast! One of my father’s friends always paid for daily items with paper bills, even if the purchase was for ten cents. He invested all of his change in the stock market, and it grew into tens of thousands for his retirement. That took more than a bit of a little discipline, but payroll deduction practically happens by itself.
Market is too high or too low: The stock market is the only market where, when things are offered at sale prices, buyers flee. Market declines are a good time to buy. Systematic investing through a company retirement plan takes advantage of market swings, making purchases with each payroll. During market declines each purchase is at a better price.
Likewise, when the market is booming many of the same people (who sell at low prices) stop buying. Apple was under $10 a share in 2003. Was it too high to buy at $50? At $100? Will $300 be too high? The fund managers in your plan decide when to buy or sell individual holdings. You watch value rise knowing your account is worth more each week as last week’s purchases grow in value.
So bet that we will survive the current challenges, and start saving for later in life, when unknown challenges will arise. A retirement plan is a tax efficient and easy way to move funds from your earnings years to your retirement years. Not only will you be happy you have a few dollars for when you stop working but you will also appreciate those dollars more at 70 than at 40!
Let me explain that.
Present vs. future value of money: When is money worth more to each of us?
What value does money hold for you now? (My answer: It depends on our present needs, and less so on our present desires.)
When is money most valuable? (My answer: When we need it most.)
If you can identify when money means the most to you in life, you can move some from when it is less important to when it is more important. This ensures that money is always serving you in the most valuable way; when you appreciate it most.
The principle is simple; a dollar has more value the hungrier we are. However once you are fed, sheltered, and clothed everything changes!
Studies and experts tell us what we generally already feel to be true:
“It is true that poor nations, (and individuals), become happier as they become middle-class nations. But once the basic necessities have been achieved, future income is lightly connected to well-being” ………
“On a personal scale, winning the lottery doesn’t seem to produce lasting gains in well-being. People aren’t happiest during the years when they are winning the most promotions. Instead, people are happy in their 20’s, dip in middle age and then, on average, hit peak happiness just after retirement at age 65.”
– David Brooks, The New York Times, March 29, 2010
Daniel Kahneman, a Nobel Prize winner, points to research showing that maximum happiness comes when you earn as little as $60,000 annually, and that earning more than 60k barely moves your happiness index at all. http://blog.socialk.com/?p=245
Assume what Brooks and Kahneman say above is true; We are happiest in our mid 20’s and just after retirement. We are the most appreciative of money when we earn just above $60,000.
We collect the most money, however, when that money adds less to our happiness. In our thirties, forties and fifties we are generally stressed with other issues in life, and we are making enough that feeding our family is not the primary concern. If we take a little of our present earnings, the extra that we end up blowing on meaningless things, and save it for the future we will ensure maximum happiness throughout our lives. We will enjoy the money more when we are relaxing in retirement, and it is there to keep us fed!
After retirement, most people live on 75% of their previous annual earnings. This, obviously, means that in your golden years you will want to do more in your free time with less — less money than you had when you were busy with work. If you move some money from when it is less important to your happiness (your thirties through your fifties) to when it is more important, you’ll have done yourself a profound favor.
The ‘extra’ money in our lives can be hard to find. Look at enjoyment from a different angle. Sure a $1,000 vacation and shopping trip are always fun, but so is a lovely home-cooked meal shared with close friends. We don’t always have to favor the inexpensive option, but being conscious of that choice will empower you to live a more content life. Once our basic needs have been met, happiness becomes harder to ‘buy’. Take some of that money you spend on frivolous things and save it for when it is more valuable to you.
If the world doesn’t end before you die, if you have a job and a life, and acknowledge the merit of redistributing money to when it is more valuable, a retirement plan is for you.
We practice living well in the moment to fully enjoy the present as it exists but ALSO, we are always aware of the need to be clear and focused enough to appropriately deal with the next moment when it arrives. Redistributing a portion of your earnings to the future—where you’ll enjoy it more—is among the most effective ways to encourage a meaningful evaluation of your present situation while also enhancing your future.
“How Can I get started!”
Talk to your boss (and for you entrepreneurs out there, that may be a conversation with yourselves) and discuss the benefits of a company-sponsored retirement plan. Many business owners think a plan is expensive and cumbersome. When they realize, however, that the cost is under $2000 a year; the discussion takes on new life. (There is a one-time set-up fee of $750.) A match is discretionary not mandatory, and the same goes for a profit sharing distributions. Employees will appreciate the convenience and discipline of a company-sponsored plan. The magic of auto enrollment and auto deduction means a lot of people start saving sooner rather than later. (If your company is considering B Corp certification, a retirement plan with SRI options will score it some survey points!)
Offering employees a way to invest for their future is an obligation for any mission driven organization. Consider how you can make this possible where you work. Your employees will appreciate the opportunity to move money from where it means less, and offers less value, to a time later in life when it is much more valuable. Now that is a return anyone can appreciate.
Retirement plans are a tax-advantaged, safe, and responsible way to grow your money for the future. I believe that the more people who see a sustainable future, the more likely they are to invest in environmental policies, social plans and sustainable technologies that create a better future for generations to come. If we make it through the next 50 years, and you have a respectable retirement account, send me a thank you note.