Work Till You Drop: It’s Not as Bad as You Think

by Will Ashworth | October 29, 2012 8:30 am

Work Till You Drop: It’s Not as Bad as You Think

CNNMoney recently published an article discussing the reasons why more Americans are delaying retirement into their 80s[1]. It cited a Wells Fargo (NYSE:WFC[2]) survey of 1,000 adults earnings less than $100,000, in which one out of every five said they would be working to 80 or older because they couldn’t afford to retire full-time.

Media generally portray this as a pretty bleak picture. I’ll look at the reasons why it’s actually a good thing.

The concept of retirement, like the idea of working for the same company your entire career, is old fashioned and outdated. Retirement first became a household idea in 1889 when German Chancellor Otto von Bismarck introduced the world’s first social security system. The retirement age was 70. Men in Germany at that time lived on average to 72, providing retirees with a two-year pension. In 1916, the retirement age in Germany was lowered to 65, and today it’s 67 with talk of it rising to 69.

Here in the U.S., American Express (NYSE:AXP[3]) created the first private pension plan in 1875. At the time, approximately 75% of men over 65 were working. By 1919, as many as 300 private pension plans were in existence, covering 15% of the country’s salaried employees. The average male life expectancy by then was 53.5 years of age.

Retirement as a norm in the U.S. began in 1935 with the introduction of Social Security. As part of the legislation, 65 was established as the retirement age. At that time, men could expect to live to 60, so the government figured few people would live long enough to even qualify for benefits. But those reaching 65 at that time could could expect to live another 12 years on average[4]. Still, it was clearly never intended to fund a  retirement of two decades or longer. Hence, the introduction of the 401(k).

With the passing of the Revenue Act in 1978, the financial services industry was forever changed. In the 34 years since, these companies have grown rich pushing a “retirement savings” agenda on Americans of every income, gender and race. Search the words “retirement savings too low,” and you get more than 34 million results, many detailing why you’re saving too little for retirement and how you’ll be living on the street if you don’t accelerate the process.

We stress about this impending doom and redirect a piece of our paycheck into our 401(k) or IRA. It doesn’t matter that the professionals managing the mutual funds and exchange-traded funds available in our plans and who supposedly have our best interests at heart aren’t very good at investing our hard-earned dollars and cents. The important thing is that we’re putting some percentage of our paycheck toward their comfortable retirement.

Why Retire?

My grandfather retired in 1970 at the age of 69 after the spin-off business he was supposed to run as CEO was prevented from getting off the ground due to government concerns over foreign ownership. Without a job to go, to he died eight years later. I’m convinced boredom and missing business so much led to his demise because he was in good health when he retired. Many older businesspeople can surely relate.

Laura Vanderkam is an author of several books about money and has written for many national publications including USA Today, CBS MoneyWatch and The Wall Street Journal. In her blog post[5] of Feb. 26, she makes some excellent points about why focusing on retirement is a bad idea. For instance, Vanderkam asks: “Rather than calculating how many lattes we must forgo to live off interest at age 65, why not put that same mental energy into figuring out what kind of work we wouldn’t want to retire from?”

My grandfather knew the answer to this question, and yet his retirement prevented him from using his talents for the betterment of business and society as a whole.

A second point, and equally important, is that every $10,000 you’re able to earn working in your senior years amounts to $250,000 you don’t need in savings[6]. Someone who’s worked a physically demanding job their entire career might have to use their brainpower instead of brawn to earn the extra income. Uncomfortable as it might seem, this type of personal growth will keep you healthier longer, reducing your medical costs as you get older.

By simply deciding to keep working into your 80s, you help yourself in four ways: less savings required, personal development, mental stimulation and lower healthcare costs. It’s not what the retirement industry wants you to hear, but it’s so true. Do as much as you can for as long as you can.

According to Money[7], a healthy 65-year-old can now expect to live another 20 years. Assuming you enter the workforce at age 25 and retire at 65, you’ll spend one-third of your adult life in retirement. That’s just nuts. The amount the average person saves isn’t to blame for the current dilemma facing the retirement system; the way we look at life is at the heart of the problem.

Entrepreneurs like Donald Trump and Richard Branson are great examples of why it’s important to do what you love. Can you imagine either of them retiring? Warren Buffett is in his 80s, and he’s always commenting about how much he loves going to work. Yet, it’s the middle class that are sold on the idea of retirement when they’re the one’s who have the least chance of actually enjoying it.

An Alternative Approach

Everyday, we’re sold a bill of goods by the wealth management industry.We’re told that if we’re good little savers for the next 40 years, we won’t end up living in a box somewhere. Assets under management in the U.S. in 2009 totaled $31.4 trillion. Based on a 1% annual fee (it’s likely much higher), wealth managers generate $314 billion in revenue each year from those assets. The national debt is $16.2 trillion.

Rather than worrying about retirement, why not take some of those assets and completely pay down the debt. We’d all be a lot farther ahead.

Conventional thinking suggests you should pursue this wacky ideal of a 20-year retirement. However, it’s far more sensible to accept a life spent working. Here’s a suggestion: How about taking a few months off every two or three years to recharge your batteries? Corporations obviously would hate it, but they’d actually get healthier, more productive employees. Furthermore, with the money they’d save by not having to make 401(k) contributions, they could pay employees more in the here and now, allowing workers to actually afford the time off.

Work till you drop. It’s not as bad as you think.

As of this writing, Will Ashworth didn’t own a position in any securities mentioned here.

Endnotes:
  1. delaying retirement into their 80s: http://money.cnn.com/2012/10/23/retirement/delaying-retirement/index.html
  2. WFC: http://studio-5.financialcontent.com/investplace/quote?Symbol=WFC
  3. AXP: http://studio-5.financialcontent.com/investplace/quote?Symbol=AXP
  4. could expect to live another 12 years on average: http://scholarship.law.georgetown.edu/cgi/viewcontent.cgi?article=1049&context=legal&sei-
  5. blog post: http://lauravanderkam.com/2012/02/retire/
  6. $250,000 you don’t need in savings: http://lauravanderkam.com/2012/02/retire/
  7. According to Money: http://money.cnn.com/2012/04/27/pf/expert/life-expectancy-retirement.moneymag/index.htm

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