An uncertain future is a major reason to save for retirement. It’s not a reason to stop saving.
Think back to any experience you’ve had that caught you by surprise. In any one of those instances, you probably didn’t think, “Wow, I’m sure glad I wasn’t prepared for this.”
Preparedness is almost always preferred. Does that mean that you can be prepared for everything? No. That’s simply the nature of an uncertain future. But even imperfect preparedness can reduce the negative impact of unforeseen events.
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Examples when financial preparedness matters include:
— Insurance. Consumers buy insurance because they might need it. They purchase health insurance if they get sick, auto insurance if they have a wreck or home insurance because it sometimes hails. Individuals don’t know that any of those things will happen, but having insurance provides some relief if they do.
— Emergency fund. This is a core aspect of personal finance because emergencies can pop up at any time. Layoffs, broken appliances and home repairs are always a possibility. Savers keep emergency funds on hand to minimize disruption when they do.
You may have an experience in which you discover you had a little less insurance than you needed or your emergency fund wasn’t quite large enough. But in all cases, the fact you were even somewhat prepared will make the experience less painful.
Is the Future Uncertain?
The future is, as a direct matter of fact, uncertain. It always has been. It always will be.
But there are plenty of reasonable assumptions you can make about that uncertain future, even if you can’t perfectly predict them.
Your retirement age is one prediction you can make.
If you don’t have an exact age in mind, it’s reasonable to assume that you might retire in your 60s. That’s not so early as to require extreme saving for most workers, and plenty of people who intend to work longer when they are young find themselves needing to retire in their 60s when they get there. So, that’s a good start. You could pick age 65 to split the difference. Odds are you’ll fall within a few years on either side of that age.
The amount you save is another element you can control. Sure, your income and ordinary expenses will fluctuate over time — hopefully, trending upward as your career progresses — but that’s part of what makes saving a certain percentage of your income a good idea. If you can set aside 15% now, it’s reasonable to assume you can continue doing that into retirement.
You may also be able to make an educated guess about investment returns, Social Security payments and retirement expenses, based on current realities and financial models.
Saving for Retirement When the Future Seems Bleak: A Question of How Much
If you decide that you shouldn’t plan for retirement because the future is uncertain, that same logic can lead you to decide there’s ultimately no point in doing anything.
Why even eat lunch? There’s no telling what the afternoon holds after all. The idea here is that planning for an uncertain future exists on a spectrum, with extremes at either end. It’s not a binary “do” or “don’t” but more of a sliding scale. Instead, savers should think in terms of “how much.”
And that’s why it’s important to think about how much you should prepare for retirement to get the best outcome for you. That’s going to be different for everyone based on the outcomes they want and the sacrifices they think are worthwhile to make it happen.
Saving for retirement means giving up money that you could be spending and enjoying now, which translates into reducing purchases and scaling back on experiences. The trade-off, of course, is that if you spend and enjoy all of your money now, you won’t have any retirement funds to rely on later.
— Some people are willing to give up considerable amounts of current financial resources to achieve lofty retirement goals. An example might be someone who saves 50% of their income so they can retire at 40.
— Other people might choose to save a smaller amount, such as 10%, and plan to work well into their 70s.
There are risks and benefits to both of these extremes. But these options, and any of these choices in between, can be the optimal choice for a given person depending on how they view those trade-offs.
If you think it may not be worth planning for retirement, I’d encourage you to at least consider giving a small amount of attention to it. It would be a lot better to have some resources and a plan for how to use them, even if the plan doesn’t work perfectly, than it would be to scramble as events unfold.
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Should You Save for Retirement When the Future Is Uncertain?
If this is a deep thought for you rather than a passing idea, and it causes concern, talk it through with someone who can engage in a deeper, more individualized conversation.
I’m a financial planner and don’t pretend to be a counselor or psychologist. But if this is something you dwell on, I can’t imagine that it’s good for you to keep to yourself. Sometimes, just talking through problems can help you decide how you want to approach them.
On the other hand, if you’re just more interested in spending your money today than saving it for a future retirement lifestyle, consider the impact a little bit of foresight can have on your financial life decades into the future.
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Ask a Financial Pro: The Future Seems Uncertain. What’s the Point of Saving for Retirement? originally appeared on usnews.com
