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I'm just graduating college, and I'm starting to educate myself on economics, finance, and investing, and everything I see is sort of screaming at me "PLAN YOUR RETIREMENT!!"

Now, I know this sounds ridiculous, so feel free to laugh and tell me I'll quickly change my mind once I've been working for a little while, but what if I don't want to retire?

I feel like I'd rather use my money to guide my life in a direction where I'm doing something I love every day.

I know this isn't unheard of, but it's very uncommon. Why is that?

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Interesting question. I suspect there will come a day when you physically cannot work anymore. Perhaps plan for that? –  MrChrister Nov 17 '12 at 20:30
    
It sounds to me that the question is really, "Why would anyone want to retire as opposed to continuing to work at what they love?". Is that right? If so, I'm not sure it is an appropriate question for this site. However, if the Moderators That Be feel it is, there is probably some interesting history of the concept of retirement in the West that we could get into. It's definitely an intriguing topic. –  Chelonian Nov 19 '12 at 5:22
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You probably wouldn't want to die of hunger without a roof on your head and leave your corpse for vultures, the birds, when you can no longer take care of yourself. –  DumbCoder Nov 19 '12 at 16:25
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Would it be so bad to also be wealthy while doing what you love when you're older? –  corsiKa Nov 19 '12 at 21:25
    
That's how you feel now. You may feel differently in 40 years' time. –  Steve Melnikoff Nov 21 '12 at 12:27

9 Answers 9

up vote 10 down vote accepted

1) People aren't always going to be able to do their occupation, or their desired hobby.

2) Government assistance, or whatever you want to call it, is available at a certain age. Some people look forward to this and plan to rely on it, but it isn't really sufficient for living off of and keeping the standard of living you will be used to.

Therefore, such situations require you to plan using a variety of other institutions to help you in that time.

Finally, more is more: if your retirement funds exceed what you need, you can leave something for your family to help them start at a more stable financial place after you are gone.

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Yup. There is an amount of time in which you can earn money, and by and large that amount of time is much less than your lifespan. So the alternative to planning for retirement is likely not having enough money to enjoy an acceptable lifestyle after one cannot work. –  MrChrister Nov 17 '12 at 20:26
    
For more on this, you can look at Modigliani and the Life-Cycle theory of financial planning. One of the key reasons for planning given is that people tend to prefer a constant standard of living to one that rises and falls dramatically based on life events such as retirement. –  JAGAnalyst Apr 11 '13 at 17:07

You don't have to retire. But the US government and other national governments have programs that allow you to set aside money when you are young to be used when you are older.

To encourage you to do this, they reduce your taxes either now or when your are older. They also allow your employer to match your funds. In the US they have IRAs, 401Ks, and Social Security.

You are not required to stop working while tapping into these funds. Having a job and using these funds will impact your taxes, but your are not forbidden from doing both.

Decades ago most retirement funds come from pensions and Social Security. Most people are going to reach their senior years without a pension, or with only a very small pension because they had one in one of their early jobs.

So go ahead, gamble that you will not need to save for retirement. Then hope that decades later you were right about it, because you can't go back in time and fix your choice.

Some never save for retirement, either because they can't or they think they can't. Many that don't save end up working longer than they imagined. Some work everyday until they die, or are physically unable to work. Sometimes it is because they love the job, but often it is because they cannot afford to quit.

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+1 Nice answer. I edited the answer to change the fourth word from the end from "can" to "cannot" which is what I suspect you meant, so please change back if I misunderstood what you were trying to say. –  Dilip Sarwate Nov 18 '12 at 4:04

In addition to what others have said, I think it is important to consider that government retirement assistance (whatever it is called in each instance) is basically a promise that can be revoked. I talked to a retired friend of mine just yesterday and we got onto that subject; she mentioned that when she was young, the promise was for 90% of one's pay, paid by the government after retiring. It is very different today.

Yes, you can gamble that you won't need the saved money, and thus decide not to save anything. What then if you do end up needing the money you did not set aside, but rather spent?

You are just now graduating college, and assuming of course that you get a decently-paying job, are likely going to have loads more money than you are used to. If you make an agreement with yourself to set aside even just 10-15% of the difference in income right from the start, that is going to grow into a pretty sizable nest egg by the time you approach retirement age. Then, you will have the option of continuing to work (maybe part-time) or quitting in a way you would not have had otherwise.

Now I'm going to pull numbers out of thin air, but suppose that you currently have $1000/month net, before expenses, and can get a job that pays $1800/month net starting out. 10-15% of the difference means you'll be saving around $100/month for retirement. In 35 years, assuming no return on investment (pessimistic, but works if returns match inflation) and no pay rises, that will still be over $40K. That's somewhere on the order of $150/month added to your retirement income for 25 years. Multiply with whatever inflation rate you think is likely if you prefer nominal values. It becomes even more noticable if you save a significant fraction of the additional pay; if you save 1/3 of the additional money (note that you still effectively get a 50% raise compared to what you have been living on before), that gives you a net income of $1500/month instead of $1800 ($500/month more rather than $800/month more) which grows into about $110K in 35 years assuming no return on investment. Nearly $400 per month for 25 years. $100 per week is hardly chump change in retirement, and it is still quite realistic for most people to save 30% of the money they did not have before.

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Another thing that "retirement" lets you do is do what you love without worrying about making enough money to live on by doing it. For example, volunteering your time or starting your own business. These are much easier to do when you don't have to worry about getting paid. Having a source of income provides a lot more freedom to pursue what you love.

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If you can afford it, there are very few reasons not to save for retirement. The biggest reason I can think of is that, simply, you are saving in general. The tax advantages of 401k and IRA accounts help increase your wealth, but the most important thing is to start saving at an early age in your career (as you are doing) and making sure to continue contributing throughout your life. Compound interest serves you well.

If you are really concerned that saving for retirement in your situation would equate to putting money away for no good reason, you can do a couple of things:

  1. Save in a Roth IRA account which does not require minimum distributions when you get past a certain age. Additionally, your contributions only (that is, not your interest earnings) to a Roth can be withdrawn tax and penalty free at any time while you are under the age of 59.5. And once you are older than that you can take distributions as however you need.

  2. Save by investing in a balanced portfolio of stocks and bonds. You won't get the tax advantages of a retirement account, but you will still benefit from the time value of money. The bonus here is that you can withdraw your money whenever you want without penalty.

Both IRA accounts and mutual fund/brokerage accounts will give you a choice of many securities that you can invest in. In comparison, 401k plans (below) often have limited choices for you.

Most people choose to use their company's 401k plan for retirement savings. In general you do not want to be in a position where you have to borrow from your 401k. As such it's not a great option for savings that you think you'd need before you retire. Additionally 401k plans have minimum distributions, so you will have to periodically take some money from the account when you are in retirement. The biggest advantage of 401k plans is that often employers will match contributions to a certain extent, which is basically free money for you.

In the end, these are just some suggestions. Probably best to consult with a financial planner to hammer out all the details.

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I suggest that you think in terms of "financial independence" rather than retirement.

You do not need to retire in the stereotypical sense of playing golf and moving to Florida.

If you reach a point where your "day job" does not need to pay your bills, you open up more options for what you can do. I am not saying to wait until retirement to do something you love. I am saying that lower salary requirements open up more options.

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I like many of the answers, but here is a summary of reasons:

  1. Almost everyone will retire, and it is almost certain that government or company pensions schemes will not alone give you a lifestyle you would like in retirement.

  2. Money invested early is worth much more in retirement than money invested late, thanks to the miracle of compound interest.

  3. In some countries there are tax advantages to investing a little bit of money every year, compared with nothing for a few years and then a lump sum later.

  4. Much investment advice is given by investment consultants, who profit when you make investments. It's always in their interests to have you invest as early and as often as possible (that doesn't invalidate the first three reasons).

Having said that, it isn't always in your best interests to invest in retirement funds very heavily at the start of your career. You might want to consider paying off any debts, or saving for a house, or even having a bit of fun while you are young enough to enjoy it. That back-packing trip to Nepal is going to be a lot easier when you are 23 than when you are 40 with kids.

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In addition to the choice that saving for retirement affords - itself a great comfort - the miracle of compounding is so great that even if you chose to work in old age, having set aside sums of money that grow will itself help your future.

The are so many versions of the "saving money in your 20s" that equals millions of dollars that the numbers aren't worth showing here. Still, any time value of money example will illustrate the truth.

That said, time value of money does start with the assumption that a dollar today is worth more than a dollar tomorrow. Inflation, after all, eats away at the value of a dollar. It's just that compounding so outshines inflation that any mature person who is willing to wait, should be convinced. Until you work the examples, however, it's not at all obvious.

It took my daughter years to figure out that saving her allowance let her get way better stuff. The same is true of everyone.

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I actually really like the way you positioned this question. If you love what you are doing every day, why would you ever want to quit, right? I'd think of retirement as a safety net instead. Your retirement can be a fall back for if something happens if you are unable to work or deicide to work less. There are some really good answers listed here, but I think it depends on how you want to view, or rather define retirement.

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Welcome to SE! Have a look around, you'll be amazed what you find! –  Aerovistae Apr 11 '13 at 4:40

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