Youth Needn't Be Wasted on the Young

I have a faint memory of a family in our church when I was in middle school, probably, selling their house and all their possessions to buy a boat and sail around the world. I occasionally wonder what happened to them. Did they find happiness? Fulfillment? Adventure? Terror? Were the kids able to finish school? Are they, ahem, normal after such an experience?

Who among us hasn’t dreamed of just chucking everything, telling our boss to take a leap and hopping on a plane to Bora Bora? Which isn’t easy to get to, by the way, I checked. In fact, according to a recent article in Bloomberg, there is a small, but growing, trend of people taking a one or two-year break from their careers to travel the world. Call it an unpaid sabbatical, of sorts.

With people living longer and projected, with healthcare advances, to live even longer, people may experience more years of retirement. With that, of course, comes the need for greater savings to provide income for more years, too. For instance, if one retires at 65 and lives until 75, one only needs retirement savings sufficient to provide income for 10 years. But, if one retires at 65 and lives until 90, that’s a whole different equation.

A solution for some? Many people are working later in life. It’s not unusual for people to work deep into their 70’s. The founder of Moneywatch Advisors, for instance, is in his mid-70’s and still going strong. I, too, plan and hope to work into my mid-70’s, assuming I still enjoy my work.

But, a career that starts at age 22 or so and lasts 50 or more years is grueling. So, why not borrow a couple of years of retirement from your future self and use them now, when you’re healthy enough for a world-wide jaunt? And then repay yourself by working a bit later in life.

Those of us in our industry tend to preach a lot about the importance of saving and investing for our future. But, intermediate goals are important, too. Travel, time with family, maybe a vacation home can be worthy investments along the way. Your financial plan can and should incorporate items such as these.

So, did that family from my childhood really quit work forever? I’m guessing that’s an unlikely scenario. If I were advising them today, I would suggest they develop a 2-year travel budget. Let’s say that was $80,000. Assuming they had saved that amount as part of our financial planning and didn’t have to take it from their retirement savings, we would then calculate the impact of making no contributions to their retirement for two years. Just to use round numbers, forgoing $40,000 of savings and employer matches over two years would reduce their ultimate retirement savings by roughly $217,000. That’s the amount that $40k would have earned from age 40 until age 65, earning an average annual return of 7%. That illustrates how powerful compounding is, by the way. But, as long as that amount is factored into your financial plan, you can plan to either just have less savings when you retire or work a bit longer to make it up. 

Interrupting a career isn’t for everybody, that’s for sure. But, retirement shouldn’t be viewed as a finish line where we stop work and start life. As long as we plan, let’s take advantage of our youth while we have it.

Steve Byars