The prominent assumption is that you have the right and ability to work until, at least, the age 65. And yet, you’ve probably had a conversation with at least one of the following people:
- The parent or older relative who can’t find a new job because prospective employees don’t want to hire a 60-year-old
- The 40-year-old tech worker who feels like a dinosaur next to their 20-something colleagues in San Francisco, New York, Los Angeles, or Chicago
- The 50-year-old who is an expert in their field but cannot compete with younger prospects who have a better understanding of modern technology
- The 65-year-old driving an Uber or working at Starbucks with the intention of helping his/her kid pay for college
These instances make up a bigger proof point. Current trends are predicting that, if you are a 20- or 30-something today, you will be forced to retire before the age of 65. The following three trends will signal what the latter half of your career may have in store for you.
- The market no longer allows for employing older workers who deserve higher salaries.
This is due to a variety of factors, including changing consumer preferences, disruptive startups, globalization, and ageism. Mega-corporations that used to employ middle-aged and near-retirement workers are now realizing they are spending millions on employees they can no longer afford to have, directly affecting their P&L.
When you see companies like McDonalds making dramatic moves by relocating their HQ from the suburbs to a young, urban center in Chicago and buying out Director Level employees who they can no longer afford, you know this trend is real. This is happening, and will continue to happen, across thousands of corporations that are realizing they need to attract younger and cheaper talent. It’s not right but there are very real perceptions that are making it difficult for older folks to find and keep jobs (especially in fields that rely heavily on technology or at companies that didn’t exist 10 or 20 years ago).
- Technology is killing jobs at a very fast pace that will only continue to accelerate.
Thanks to advancements in technology, jobs are becoming more automated. Assuming that we can eventually automate all basic jobs and allow artificial intelligence to conduct more skilled work, there will only be a need for a small group of educated, experienced, but inexpensive workers. What counts as expensive workers?
- Group A: Large populations of low-skilled workers (varying in age) who require lots of benefits. Companies will look to replace groups of ten or even hundreds of people with one computer to reduce costs.
- Group B: 20- to 50-year-olds who have the expertise and experience to manage people and machines. These people command a spectrum of salaries but are willing and able to work efficiently relative to their compensation expectations. They’re still “expensive,” but the ROI remains palatable since machines cannot run completely independently or manage people…yet.
- Group C: 50+ year olds who are extremely skilled and experienced workers. They can effectively manage people and machines but require very high salaries. Often, due to realities of aging, they cannot operate at same levels of efficiency as Group A or B. This makes them “expensive”.
This isn’t new. During the industrial revolution, millions of jobs were eliminated because of machines or development of new products that made others obsolete. The difference between the technological advancements of the industrial revolution versus those of today is that half or more of all future product and service needs won’t be replaced by humans but by computers. Some may argue that we’ll create more jobs to replace those lost, but the last ten years are a clear indication that computation and automation are advancing faster than the invention of new products or industries that require (human) labor.
The good news is that society can still function effectively with less man-hours of work. The bad news is that most current systems of government and economic management aren’t set up for this.
- People are continuing to live longer.
The average life expectancy is on a steady uptick. Like every other industry, technology in medicine is advancing at an exponential rate, meaning that life spans will likely rise faster than ever before. So the equation we’re left with is that life spans are increasing while job availability, especially amongst the 50- to 65-year-old range, is decreasing.
Even more problematic: many retirees of today and tomorrow are banking on a system with a hazy future. Social security has a short life-span because the funds flowing in are slower than the funds going out. 401Ks are not keeping pace with inflation (especially as it relates to healthcare and housing costs) and pensions are nearly extinct or in aworld of trouble.
In context of this article, “retirement” means not working a standard 40-hour week at a traditional job or not relying on being a full-time “employee”. Perhaps you will work for yourself or at a part-time job. You might even make enough money trading stocks or selling technology. Despite the possibilities, the current state of retirement proves that, since the eighties, Americans have been underestimating their retirement needs. This has created a dangerous downward spiral for many retirees. So what should you do to be prepared when the time for retirement comes (possibly sooner than you think)?
- Rely on more than your 401(k). There are lots of ways to save extra cash for retirement. You could open up a life insurance policy, a separate IRA or, for the risk-tolerant, put your money in long-term growth stocks. Regardless of the mechanism, you should be putting cash away. A couple of hundred dollars a month, outside of your 401(k), put away today will buy you several luxury vacations tomorrow or even startup capital to create a small business. Remember, social security probably won’t exist when you retire and your 401(k) is designed for you to keep working until you’re 65+. The trends above prove that working until 65+ will be a rare possibility.
- Anticipate and prepare for the economic cost of having kids. On average, raising one child until they are 18-years-old will cost you $250,000. So, for every kid you’re planning, you should also plan to tack $250,000 onto your mortgage. If you’re 30 and can afford a $1,000,000 house over the next few decades, buy a $750,000 house, then have a kid. Or buy a $500,000 house, and have two kids. Remember: money compounds. If you don’t adjust accordingly when you have a child earlier in life, you are pushing back the age of when you can retire.
- Buy a home. Specifically, buy a home in a neighborhood that has a high likelihood of growing faster than other neighborhoods. This means doing your research so you can predict where the next Brooklyn, Wicker Park, Oakland, or Venice Beach is going to be. It also means that you might live in a less-luxurious neighborhood than you’re comfortable with for a few years. But, if you can live in a house for five years, put equity into it, and then sell it for a profit, it will set you up with the down-payment capital you need for the rest of your life. This is a giant hurdle that the many urban dwellers and younger people have a hard time climbing over.
- Don’t get a master’s degree unless you work in a field that will pay you enough to offset the cost of your secondary education in <10 years. If you’re likely to be earning $200,000+ a year within five years of graduating, go ahead and invest the money and time into a master’s degree. Otherwise, use the vast pool of knowledge called the Internet to learn what you want, possibly for free.As for undergraduate degrees, be mindful of how much debt you allow yourself to rack up. There’s agrowing mound of data that shows colleges failing to deliver a positive ROI.
- Reverse engineer what you’ll need (and want) to retire.Ultimately you’ll need to decide what a comfortable retirement means for you and then what you’ll need financially to afford it. Be optimistic and assume you’ll live a bit longer than average. Be pessimistic and assume you’ll need to do so single, not as a couple (people die, get divorced, lose their second stream of income, etc.). What would it take for you to live from the age 50 to 80 on your own? There are plenty ofresources that can help you do this math and prepare for the future.
- Spend an extra two hours per week side-hustling. There are 168 hours each week that you can spend working, sleeping, eating, exercising, Facebooking, watching TV, or enjoying time with your loved ones. Steal two hours each week from the less-necessary uses of time and apply them to developing a side-business. The most successful people in the world all have more than one job or investment because diversification leads to income optimization and stabilization over time. Make stuff or invest in stuff on the side so that your paycheck isn’t the only thing contributing to your savings or expulsion of debt. Best case scenario — side-hustle could turn into a serious cash generator or even “the job” when you have to retire early.
- Never do your own taxes. The U.S. tax system is overly complicated. Until that gets reformed, don’t do your own taxes. You might save a few hundred bucks by using TurboTax instead of hiring an accountant but you will lose thousands in the long run. As you start to make more money, get married, buy a home, invest in stocks, run other businesses and so on, your taxes will continue to get more complicated. The bad news is that there will be lots more paperwork. The good news is that there will lots more loopholes that you can use to your advantage. Not only will you save time and avoid audits by using a CPA, you will essentially be increasing your annual income. So, is a CPA telling you it’s going to cost $500 to do your taxes? Trust me…smile and pay them.
Don’t agree with the aforementioned points?
Almost all the observations and pieces of advice I’ve laid out are debatable. Please know that this post was not meant to lecture or offend. It was written to light a fire under the asses of people, like me, who don’t often take enough time to plan for the future.
Live long and prosper.