Retirement for some people will be 20 years from now. For others, it will be 40 or more years away. In fact, with life expectancy increasing and the US Government calling Social Security payments an entitlement fund, it may even be 50 years before you retire. Of course, assuming there will even be a fund left is a lot like waiting for Dungeons and Dragons to be cool.
So, don’t count on your Social Security entitlement, because honestly, it’s just extra taxes. If you prefer a more realistic scenario with that money, you could just accept that it is an involuntary contribution to the pay increases Congressmen and Senators earn between luncheons and move on. Being real about things like that will help keep you focused on getting the retirement ball rolling. If you don’t get that ball moving, then you’re in trouble.
That has a lot to do with the physics of retirement. You can either choose to be an object in motion, or an object at rest. The two choices are fairly straightforward. If you choose to be an object at rest, you will probably end up living on a budget lower than your university living expenses, with exponentially more health and medical concerns, not to mention a budget for adult diapers (remember, we’re being realistic about this). If you’re an object in motion, then you’ll be in control of when and where you retire. You’ll also be able to afford those thin diapers that no one will notice, which might put you in line with everyone else in the next Expendables movie. Also, the politically correct term for them is 'adjustable underwear'.
Don't laugh, it's actually pretty scary when you think about it. If you still don’t have that picture, consider that university life was essentially boot camp for retirement, and boot camp is designed to prepare you for war, which in this case would be retirement. The difference is that unlike boot camp, the someone else paying for everything and making sure you are OK is going to be you – the younger you. The irresponsible one, who was just about to take out a huge loan on a cool sports car instead of buying a used Toyota and saving for retirement.
Not a good idea.
Now that we've gotten the dramatic pause out of the way, it’s time for you to keep living frugally for the next four years, just like university. Wait a bit for all of the cool gadgets you can afford now. In a few years, most of them will suck. What you need to be doing instead is making the maximum contributions to a Roth IRA over the next five years (ok, five instead of four - an extra year of Ramen will build character). Max out any employee 401k plan as well.
If you have any doubts about the gadgets, just consider the iPhone. If you'd still run out and spend $800 on a first generation iPhone because it is still so cool today, then you've totally missed the point of this article.
The Roth will let you withdraw your contributions tax and penalty free at any time, for anything you want. Earnings can be withdrawn tax free after five years, and at age 59 and a half. Your 401k plan usually has a company requirement that you keep it for five years or more in order to be fully vested. Fully vested is what you want, because it means that in addition to all of your money in the plan, you also get to keep everything the company contributed. Good plans will match contributions dollar for dollar, meaning you get 100% return on your investment. It just usually takes about five years for that whole vested thing to happen.
In closing, if you’re thinking that this writer started out discussing few years of living frugally so you could save, but it ended up turning into five years of forced savings, welcome to the real world. One more year of university style living won’t kill you. In fact, neither will five. They will add quality years to your life, establishing a firm foundation for your future retirement and planned return to summer vacations and being that creepy old guy at the beach in a speedo. Plus it sets a precedent of savings that will become second nature to you by the time those awful five years of savings have passed.
In the end, it will mean being able to actually enjoy your retirement, as opposed to waiting tables so you can make ends meet, and no one wants Father Time taking their order. Alternatively you could be jamming away like grandpa in the cover photo, but I'm pretty sure Mick Jagger and Paul McCartney have that one covered, with Father Time on the drums.
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