Age Sixty-Five is the Deadline for Becoming Independently Wealthy?

The standard retirement age in the U.S. is age 65.  Most people see that as the date they should be ready to retire, but retirement has changed significantly over that past hundred years.  I think our expectations have changed from “retiring” from the workforce to becoming independently wealthy.  I also think these changes have confused people on whether or not they have enough money saved for their old age.

Back in the day (say the 1880’s,) there was no retirement in the sense we use now.  Instead of saving for a late stage in life when they didn’t have to work, people saved for a time when they couldn’t work.  If they had children, they expected their children to care for them. There were even contracts that were drawn up between parents and their children guaranteeing the parents a certain amount of food or firewood in return for the parent’s property.  Anyone with few or no children would need to make up the difference with personal savings, or face indigency.

Over the last 100+ years, the labor force participation rate at age 65 has dropped significantly. This has been attributed to the institution of Social Security and private pension plans in the last century.

Derived from "Economic History of Retirement in the United States" by Joanna Short

Derived from data from “Economic History of Retirement in the United States” by Joanna Short

Remember, the period when people weren’t expected to work was expected to be brief and immediately precede illness and death. When they were done working, it was expected that they would be largely home-bound. That’s not the case now, is it?

Current retirement expectations hold that one should retire at 65, with enough personal savings to create an income large enough to keep a retiree comfortable for 15+ years while allowing the retiree to engage in a variety of leisurely pursuits.  In effect, the retirement goals that come up in magazines and other media is the dream of becoming independently wealthy by age 65.  Of course, it’s difficult (if not impossible) to save up the amount of money a person would need to fund that sort of retirement, on the average income. Many of the people who manage to amass that much money are helped along by investing in a robust market with enough diversification to reduce the likelihood of being wiped out by sudden market drops.  So, we end up with a lot of ideas about how much money people need to retire, and most of the numbers are in the neighborhood of a million dollars.  We’ll, yes, you do need a lot of money if your plan is to be wealthy.

But what if you plan to work until you can’t work anymore? What if you have a different retirement? There aren’t many models of an old-fashioned retirement in the media.  If you’re not interested in living like a king in retirement, retirement becomes much more affordable. So, if age 65 is staring you in the face, and you can’t afford the media portrayal of retirement, don’t despair.  Instead of trying to become independently wealthy by age 65, focus on having savings to make you secure in your old age.  Don’t’ let perfection be the enemy of your good.

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