Misconceptions about "work until age 65"
The life script of "work a job until you turn 65" has multiple weaknesses:
People think your golden years are 65+ when you have enough money to never need to work again.
Dr. Jordan Peterson argues your actual golden years are when your kids are between the ages of 0-4.
65 (the age) is not a finish line
The objective of personal finance is to put yourself in a position where you never again need to trade your time for money.
There is no absolutely reason to think that this is achieved once you turn 65. The age of 65 is completely unrelated to your Savings Rate, says nothing about your Runway, and has zero impact on Passive Cash Flow.
Why most people think of 65 as retirement age
The reason everyone thinks of 65 as retirement age is because this is the age at which you can access your 401K and Roth IRA funds without having to pay taxes on the gain.
Because 401K's and Roth IRA's are the only kind of investments most people ever make, this usually results in the only liquidation event of peoples' lives.
Americans have no savings, no leverage, & no options
The average Savings Rate in America is about 5%. (Q3 2022)
- Current Savings Rate data can be found at the Federal Reserve Economic Data website.
One consequence of having a single digit Savings Rate is that your Runway never increases. You become stuck 3 months away from bankruptcy, which keeps you trapped at your current Stage of Financial Independence indefinitely.
It is much more difficult to build any passive cash flow at a low Savings Rate. You have no Capital to invest, or have any means to means to acquire more.
No choice but to sell your soul to Lumbergh
Another consequence of having a low Savings Rate is that you're trapped at whatever job keeps the bills paid. Your lack of Runway doesn't give you the time necessary to pursue any better opportunities.
Not to mention it is just soul crushing to work at an Initech type of company, for a Bill Lumbergh type boss.
"Financial Advisors" are overhyped insurance salesmen
Another problem is that financial advisors are actually insurance salesmen posing as financial advisors.
Compensation structure of the profession
A high percentage of financial advisor jobs have a commission structured compensation plan. These commissions are made through selling unnecessary/bloated insurance packages, overpriced mutual funds, or subpar (and overpriced) consulting.
Notice similar wording in their job listings:
- "Uncapped earnings potential"
- "Series 7 & 66 required"
- "Insurance licenses required"
- "Entrepreneurial spirit preferred"
- "Building your 'book of business'"
- "Sales experience preferred"
All of this code just masks the fact they sell you (usually bad) investment products. They try to hide this by using fancy MBA code, but the financial incentive is for them to sell you as much insurance and investment products as they can. Your interests are a secondary consideration.
The rise of the internet made the traditional financial advisor profession obsolete.
Personal finance is not a black box of information that is being "withheld" by elitist financial advisors. Everything you need to know can be easily found online.
Bad peer advice
Most Americans have single digit Savings Rates and little to no Runway. As a result, very few people are qualified to offer valuable financial advice. Many people attempt to (usually with good intentions) but unless they personally have strong Savings Rate and Runway positions, take their advice with a grain of salt.
Be very careful about where you get your information!
Some common examples:
"You should max out your retirement accounts"
False. What you need is to build up Passive Cash Flow.
Cash flow is what buys you your time back, and using all your Capital to invest into acounts that generate no passive cash flow at the expense of assets that do is a losing strategy.
This isn't to say that retirement accounts have no place in your financial roadmap, but all of your focus and capital should go towards investments that generate cash flow.
These assets move you closer to solving the FFE, today.
"Going to university is a great career path"
Possibly, but not always. It depends on the impact your future degree will have on your Income and subsequent Savings Rate.
If that degree doubles your income then go for it. However, saying "going to university is a great option" as one-size fits all career advice is incredibly stupid. College is expensive, and should never be entered on impulse.
"My house is the best investment I've ever made"
Traditional homeownership is an inefficient use of Capital.
Suppose you have a $200,000 mortgage balance and you decide to pay it off.
Everyone you know will tell you this is a great thing to do, however, there are other considerations:
- How long will it take you to save up $200,000 in liquidity? 10 years? 20 years?
- What impact will paying off your mortgage have on your Savings Rate?
It will eliminate most of your Burn for housing. House Hacking achieves the same result for significantly less capital.
- Would another investment option have returned more to you using the same amount of capital? Most likely yes.
There are investments you can make that provide far greater swings to your Savings Rate, with far lower capital requirements, and those investments should get absolute priority.
Many of these problems stem from attempting to optimize Net Worth, when your focus should really be to maximize your Savings Rate.
If you optimize for Savings Rate, everything else will take care of itself.
Increase your Savings Rate