Canadian Capitalist recently had an article discussing the “smoke & mirrors” guy’s “Myth 1: If I had a $1,000,000… I Could Retire”. I hate guys like Mr. Trahair who rant about the financial services industry and their “vested self-interest in telling people they need more” and flame about how the banks try to scare people into putting more money away for retirement. All the while ignoring the fact that the individual also has a vested self-interest in saving for retirement. It’s the stupidest reason to not invest as much as possible that I have ever heard. It’s like taking a lower salary so you can receive the GST credit.
He talks about how once you retire your expenses are much lower because you will hopefully no longer have a mortgage to pay down, no more kids’ education to pay for, etc… So what? Your expenses could go up too if you want to travel more than before you retired. You could go out for dinner more. You might want to go buy a dream house, buy a cottage, a boat, hire a maid when you are 60, hire someone to help you out when you have a stroke at the age of 70, etc… But no, Mr. Trahir tries to explain how you’ll be just fine with 40% of what you made in your 40s.
The question of how much you need when you retire is irrelevant (if you can easily satisfy your needs). The question is how much do you want? For most people, the more the better. Of course you need money now too, but no one will instinctively starve themselves now to have more money later. Nor will you ever starve yourself now by putting away too much for later. You can always take money out of later if you need it now. One thing I don’t need is Mr. Trahair telling me that I can “get by” on only 30% of my current income in retirement. I’d rather have some balance between now and later. Maybe do some travelling and enjoy the money when I am older on a boat or a condo at Whistler or on Vancouver Island. Not scrape by on 30% of my current income.
It seems his only reason in debunking this “myth” is to “start relaxing a bit.” I think saving up more for retirement than I would actually “need” is a perfect way to “relax a bit.” The stock market and/or interest rates might go through a bad slump and your investments won’t compound as much a your thought/predicted they would. Targetting 100% of your present income (in tomorrow’s dollars) in retirement is playing is safe.
The Canadian Capitalist adds “of course, those planning an early retirement need a larger nest egg.” Another perfectly good argument for saving as much as you can. The more you save, the earlier you can retire.
Smoke and mirrors “is a metaphor for a deceptive, fraudulent or insubstantial explanation or description.” Describes Mr. Trahair very well.