Ever since time immemorial, humans have been born, they age, and one day, they die. Each of us is blessed with only a few short decades of youth; it’s all downhill from there. Indeed, retirement at the age of 65 seems almost cruel when you think about it: Most of your youth is already gone, and many of your retirement years will be spent visiting your new best friend, the doctor, and watching life pass you by as friends and family slowly pass on. Of course, there is joy, too, such as the freedom of finally being free from work, while being able to enjoy the company of children and grandchildren.
What if we didn’t have to suffer the consequences of aging; what if things didn’t have to be this way? What if one day, each passing year meant an increase in your personal expected lifespan? What if we were even able to reverse the processes of aging, so that you could be restored to youthful vigor and vitality? Sounds like wishful thinking? Ever since the beginning of time, people have been searching for the Fountain of Youth. It hasn’t yet been discovered, but in the future, maybe a miraculous fountain won’t be needed.
New Orleans Mardi Gras 1907. Illustration showing title float for Momus parade. "The Quest for the Fountain of Youth". Source: http://nutrias.org/~nopl/monthly/february2007/february2007.htm
By now, you are probably asking yourself, “what is this guy on?” Well, I am simply talking about the singularity. To explain what the singularity is, one first has to look at the general technological trends. Take a look at the time elapsed since major events in our history:
Agricultural revolution: ~10 000 years
Bronze age: ~4 000 years
Iron age: ~3 000 years
Widespread use of gunpowder; widespread sailing across the oceans: ~500 years
Industrial revolution: ~200 years
Flight; automobiles: ~100 years
TV: ~70 years
Transatlantic flight: ~50 years
Lunar landing: ~40 years
Beginning of widespread Internet use (information revolution?): ~15 years
Arriving at the singularity
As you can see, the pace of technological advance has been accelerating. The amount of change in the last 100 years alone is simply incredible, compared to all of the centuries before. It’s hard to comprehend the vast amount of change for those of us who have only been around a couple of decades, but if you had been born 100 years ago, then there would be no TV, no Internet, no international flights, no nuclear power plants… we have changed the world tremendously in the past 100 years.
As a species, we have greatly reduced the incidence of disease, we have greatly increased the dissemination of information; heck, in spite of all the bad news that you read about, the human race has built an amazing wealth of capital and technology. We stand on the shoulders of giants, of all those who have come before us and contributed to the accumulation of knowledge and progress. We’ve stumbled along the way, too, especially in the first half of this century with two world wars and with clashes of irreconcilable ideologies, but this doesn’t mean that we haven’t made a great deal of progress, in spite of the challenges that we have faced.
Given the improvements to our living conditions and to lifespans, why is it that we still imagine our later years as being more or less similar to how they’ve always been? Surely with all the change in the past 100 years, the change coming up is going to be even more incredible. It’s just hard to see, since we are actually living through these times and experiencing the progression of history first hand.
So, is this really what is still in store for us? Maybe not anymore. One guy who has put a great deal of thought into these ideas is Ray Kurzweil; you can read more about his thoughts on the singularity at his site, KurzweilAI.net.
The retirement plan
So, what does this mean for our retirement plan? First, let’s take a look at how retirement plans are often done today. The usual retirement plan takes a regular savings plan and places a few assumptions on it, such as a compound annual return of 8%, a retirement age of 65 or before, and a life expectancy of another 15-20 years beyond that. The savings built up over time are drawn down during retirement, and it looks something like this:
Traditional retirement plan. Prepared with MSN MoneyCentral.
There are a few issues with this sort of a plan:
- What happens if you live “too long”? You no longer have any retirement savings.
- What if your income changes over time? There is no longer a full-time work guarantee for many of us.
- Do you really want to settle for a “so-so” retirement, watching your nest egg dwindle with each passing day?
In order to fully capitalize on the potential advantages of longer lifespans, the above approach clearly won’t work too well. Our graph should look more like the following:
Retirement seed. Prepared with MSN MoneyCentral.
How can we get here? In order to achieve this, we can’t stick with a traditional plan, but we have to take the call to action and go above and beyond that. There are a few key points that will help form the foundation of this new retirement plan:
- Reducing expenses (Yakezie blog).
- Growing a money tree of savings.
- Building passive income (Yakezie blog).
In my next post, I will talk more about the lifestyle and expectation changes, as well as how a longer lifespan changes investing strategies. What do you think about the coming changes, and how will it impact your retirement strategy?
Further reading:
- Fantastic Voyage: Live Long Enough to Live Forever
(Amazon affiliate link)
- Transcend: Nine Steps to Living Well Forever
(Amazon affiliate link)
- Accelerando (Singularity)
(Amazon affiliate link)
- KurzweilAI.net: Bootstrapping our way to an ageless future (online article)
- Foresight Institute: Improving Health and Longevity (online article)
- The Wise Buck: How To Achieve Financial Independence (blog)
- Andrew Hallam: How to Retire Rich–Even if You’re Not – Malaysia (blog)
Related posts:
- Living to 100 and Beyond: The Changes Ahead
- Living to 100 and Beyond: Building an Infinite Portfolio
- Betting on the Future
- Becoming a Rich Man (or Woman)
- Living to 100 and Beyond: Building Your Portfolio
Hey Kevin,
This is another well-written post. Well done!
I base my “amount needed”on what I figure I’d need today. Then I compound that out by about 3% annually to cover inflation, and then I multiply that figure by 25. This allows me to withdraw 4% of my portfolio during the first year, and then it allows me to give myself slight raises each year to cover inflation.
For example, if I’d like $60,000 annually today, and I’ll be retiring in 5 years, then that $60,000 today will be the projected equivalent of $69,556 in terms of buying power 5 years from now.
To be able to withdraw a base 4% from my portfolio each year, it equates to me needing a portfolio value of $1,738,911 in 2015.
For me, though, I could live on a relative shoestring in South East Asia for most of the year. It’s my wife I have to keep happy–so we’ll need that $1.7 million. Sigh…
I look forward to your comments and your next relative post.
Cheers,
Andrew
Andrew Hallam´s last blog ..Vanguard Investments for Canadians – Why Not?
Favorite line – “watching your nest egg dwindle with each passing day”.
The problem I have (and posted about) with retirement savings is its like projecting an eventual death age and assuming a static lifestyle. Given how dynamic life is, why do people assume this?
FinEngr´s last blog ..Don’t Be Fooled by Sneaky Labeling!
William Bernstein talks about this in his book, The Four Pillars of Investing. Based on historical market scenarios, whether your money lasts 15-20 years or whether it lasts forever only involves an overall portfolio size difference of about 25%. In others words, $1 million might last 15-20 years for a certain person, but $1.25K would hypothetically last them forever. I think you have to work it out as if you’re going to last forever. You never know who might turn into Connor McLeod of the clan McLeod at the last possible moment.
Andrew Hallam´s last blog ..Vanguard Investments for Canadians – Why Not?
@Andrew
Yep, always gotta keep the significant other happy if you want harmony!
That’s interesting about 25% more; I have to take a look at that. The portion that you’re using to live off of won’t be returning 8%+ (well, it could, but then you’re opening yourself up to fairly big swings in income) but more like 4-5%, so after keeping up with inflation the margin seems pretty thin.
@FinEngr
Those are my thoughts as well; in fact, I don’t even see retirement as a hard line, but rather a goal and lifestyle i’d like to ease myself into. Each step that brings me closer to financial independence is one in the right direction. Planning for retirement in the traditional sense is kind of like planning to wither away and die; I’m planning for life, and for a bright future ahead!
As always, thanks for the great feedback, guys!
[...] Living to 100 and Beyond: How Will It Affect Your Retirement Plans? by Invest it Wisely [...]
[...] this post, I think you will agree with me that it isn’t.”Invest It Wisely gives us Living to 100 and Beyond: How Will It Affect Your Retirement Plans? adding “This article is about the impacts of improving living standards, increasing [...]
[...] is it something we can achieve in our lifetimes? In my post last week, I introduced the concept of living to 100 and beyond, and how it will affect your retirement plans. In this post, I’m going to go a bit more into detail on what changes will help us reach [...]
[...] to 100 and beyond: How will it affect your retirement plans?” from Invest it Wisely. Living a really long time will definitely impact your retirement [...]