Taking the Long View

By James Schaefer.

In America nearly everyone has the opportunity to acquire substantial retirement savings; it’s simply a matter of applying self discipline (and some common sense) consistently over a very long period of time.  Starting at age 22, saving a million dollars — or more — in retirement accounts is fairly straightforward.  And starting later in life, it is still possible — so don’t be daunted by the prospect.

The key is to live below your means.  No matter how little you make, save something from each and every paycheck.

Debt is slavery.  Savings = Freedom.   Save Until It Hurts.

Money is magic.  The “genie in the bottle” that makes it magic is the power of compound interest. That genie can be either your master or your servant.  You get to choose.

If you use borrowed money to buy things you want but don’t need, then the genie is your master, and you will pay a huge price for that decision — the price is interest paid plus earnings (returns) foregone.  If you save, and you buy things with saved money, the genie is your servant, working for you by compounding your savings.

Those savings can be in CDs and bonds;  in blue-chip stock funds;  or in aggressive investments such as small-company and emerging-market stocks.  Diversify among those choices, because every one of them can help you or hurt you—and low returns will leave you with a much higher mountain to climb. You won’t always make good decisions, and sometimes you’ll be blindsided by difficult markets;  but it’s important to make decisions of some kind.  You’d be surprised at how many well-paid and well-educated workers—even from the ranks of accountants and finance professionals—lose the advantage and power of compound interest by leaving their savings in a checking account.   They reap, but they do not sow seed for the future.

In contrast you can’t be too conservative in your planning.  It’s extremely unlikely that you’ll ever feel you saved too much.  Some are now saying that you should forget the old advice to save 12% or 20% of your gross income;  “Put one third into retirement savings!”

Plan for a short working career and a long and opulent retirement.   37 years of work (from the age of 22 to  an early—and perhaps forced—retirement at the age of 59), and  then 37 years of retirement that take you to the ripe old age of 96.  If you’ve adopted a calorie-restricted diet to extend your life span you’d better make sure you’re not scheming to outlive your savings . . . .

I was once asked why I never bought myself a BMW, and responded “Reverse snobbery.”  I don’t know the people on the road, and honestly don’t care what they think about the car I’m driving.  It’s going to sit in the parking lot at work and oxidize in the sun for nine hours a day, just like every other car there.  And there are very few big-ticket items a person can buy that will depreciate faster than a new car.  Are you willing to trade a secure retirement for an expensive and rapidly depreciating asset?

Four new cars in a working lifetime is a million dollar retirement fund foregone.  Yes, you read that correctly.  And one new car every five or six years is $2.5 million in retirement savings foregone.  Shocking, isn’t it?  Ever notice the expensive chrome wheels on some new SUVs?  They cost $500 to $800.


An old Air Force acquaintance was fond of saying, “A little stupidity goes a long way.”  Think about your spending decisions, and make sure they don’t fall into that category.

So, you may ask, “Gosh, I’m not 22 any more; I’m 52 . . . Can still I amass substantial retirement savings by age 67?” The answer is, Probably.  It all depends on how much you are willing to sacrifice.  A substantial retirement fund can be assembled in twelve to fourteen years, using normal returns on the stock market and by saving diligently and aggressively.  The math is straightforward; it truly depends only on the sacrifices a person is willing to make.  You can spend less now, and have a lot more later—or spend more now, and find that you’re the ward of a cash-strapped government in the last decade of your retirement.

So, what does all this have to do with a balanced budget amendment, and a line-item veto, and limiting the size of government as a percentage of GDP?

If consumers are profligate with their spending, it is less likely that they will expect government to behave any differently.  If consumers are prudent with their spending, they are likely to expect, and demand, that government behave likewise.  As consumers, we need to decide if having something right now is more important than ensuring a secure future. Government should be no different; it needs to do the same. Our nation’s future is less secure, because of the growth of our federal debt.

Families, businesses, and government share one thing in common: there will always be more things they want to spend money on than there is money available.  The secret to success is all about how well they manage scarce resources.  Managing through this simple truth is the hallmark of a well-run business, a well-run household budget, and — no surprise here — well-run government.  Borrowing endlessly into the future, especially for things government “wants”, is not a sustainable long-term strategy.

Regardless of whether we are talking about households or government . . .

Debt is slavery.

John, thanks for creating this site, and for giving me a forum for my views.

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