Building Wealth vs. Saving for Retirement
(Why I'm Not Saving for Retirement)

In Part 1 of this Why I'm Not Saving for Retirement series, I made the bold claim that even though I rejected the entire saving for retirement model, I expected to be in the best financial condition of my life during my so-called retirement years.

As I said in that article, "That's because I'm not saving for retirement - I'm investing in the here and now."

And to recap my main point in that article - there's a big difference between a savings mindset and an investing mindset.

Ultimately savings reveals a scarcity mentality, the fear that there's not enough to go around and whatever you're able to squirel away needs to be protected for as long as possible - because at some point it's all going to be consumed.

Investing, on the other hand, is what happens when you allow your savings to leave the farm, move to that big scary city called The World, and begin acquiring real businesses with real and growing earnings, some of which it begins sending back home to you.

And finally, for a variety of reasons spelled out in Part 1, I argued that what the managed money industry does in general, and what mutual funds do in particular, is not actually investing.

So in this article, I want to share a second reason why I'm not saving for retirement.

Why I'm Not Saving for Retirement - Reason #2

The second reason I'm not saving for retirement is that I don't believe I should have to wait most of my life in order to experience the rewards of building wealth.

It's almost like we're bribed to not trust ourselves, to hand over our hard earned funds to fee-based and indifferent third party caretakers and not have access to any of it until some future retirement age.

For some of you reading this, that could be three, and even four decades from now.

Almost like a bribe? I take that back - it IS a bribe. And not a very good one once you look at it closely.

How We're Enticed by an Inferior Financial Model

In the U.S., the bribe takes a couple of different forms - a favorable tax treatment and, frequently, partially matching contributions from one's employer.

Regarding tax advantages, retirement contributions can be funded with pre-tax dollars (401Ks and traditional IRAs) which has the effect of lowering one's current year tax liability. Actually, you're deferring taxes since ALL 401K distributions are taxable, but proponents typically argue that in retirement you're likely to be in a lower tax bracket than during your peak wage earning years so this deferment, they argue, is beneficial for most individuals.

Contributions using a Roth IRA comes from post-tax dollars. And since you've already paid taxes on this income once, it's never taxed again. And neither are any of your gains in a Roth IRA. All distributions are tax-free.

Most employers in the U.S. who rely on an educated or specialized work force, also offer matching contributions as part of their employee 401K program. The typical match is 50% up to 6% of an employee's salary.

Saving for Retirement vs. Building Wealth

The goal of retirement savings is to simply accumulate enough money so that you don't run out of it before you die. The standard managed money industry assumption is that you're likely, on average, to withdraw more money from your retirement accounts each year than will be replenished by new returns.

This is known as a "drawdown," although I prefer to call it what it really is - reverse compounding.

In contrast, the goal of building wealth is to become financially independent and secure your own freedom once and for all - as early as possible and regardless of how long you're fortunate enough to live.

The message we've been inundated with for our entire lives, however, is that, for most of us, retirement is the only shot at freedom we'll ever have, and even then we're looking at a pretty scaled back freedom.

Not to mention that this dubious freedom is paid for by a life of servitude and giving the best and most productive years of our life to someone else (i.e. an employer).

Financial Freedom - Myth and Reality

I think for a lot of people there's this fantasy or idea that when freedom and financial independence comes, it comes all of a sudden - like a flash of lightning or a winning lottery ticket or on a certain, long awaited date when you retire.

But what if the wealth building process is more incremental than that? What if it's more like a slow hatching rather than a genie that tumbles out of a magic lamp at our retirement party?

What if it doesn't have to be an all or nothing kind of affair?

My Own Non-Retirement Story

I'm neither a tax attorney nor licensed investment advisor, and I'm not trying to tell you what decisions you should make. But I do think it's important that I tell my story and offer an alternative narrative to what the managed money industry has defined as pretty much the only route to a successful retirement.

In the spring of 2009, during some of the worst of the financial crisis and Great Recession, it was announced that the small office where I'd been employed for 7 years was closing (this was actually welcome news to me since I'd really only enjoyed the job for the first six months - or until the corporate politics and hypocrisy set in - and, to make matters worse, I'd always been too stubborn to quit on my own).

I also did have the opportunity to keep my position if I were willing to relocate out of state to company headquarters, or else take a semi-generous (generous for my relatively low level position) severance payout.

It was one of the easiest decisions of my life - the severance payout, added to my existing modest non-retirement brokerage account, coupled with the income I was by then generating from some of my online endeavors (including this one), was enough, and continues to be enough to propel me, if not to a traditional or cliched wealthy lifestyle, then at least to a very real form of savvy and frugal financial independence.

An Alternate View of and Path to Wealth

Could I live entirely on my investments at the moment? No. Could I live entirely from the proceeds of my online business endeavors? No. Do I have anything close to a new vehicle in my driveway? Again, no.

But I wrote the first draft of this article on a glider in my backyard on a beautiful and breezy weekday morning with the temperature in the mid-70s (F) while most everyone else in my neighborhood was either at work or at school.

And by combining everything - investments, entrepreneurship, frugality - I see that, in a way, I've managed to shave off about 25 years from my own retirement clock.

You could make the case that, in essence, I'm retired right now. And the best part is that I get to think and write about and explore topics and subjects that I'm most interested in.

Building Wealth Requires Flexibility

When you subscribe to the traditional retirement account savings model, you limit your options or paths to financial independence.

If I hadn't had access to my own investment returns in the here and now, I would never have been able to afford the transition to self-employment.

And while entrepreneurship is no sure thing, being self-employed does theoretically remove the ceiling or cap on one's potential income.

When I work for someone else, I know each year what my maximum income is going to be. But when I work for myself, my income is tied to my ability to grow my business(es), which is theoretically unlimited.

And if or when I'm able to finally begin earning substantially more working for myself than I ever could working for someone else (entrepreneurship is rarely the story of overnight success), then the result is significantly more money to invest which, of course, serves to further snowball the wealth building process.

So, for me at least, one of the best (and least regrettable) decisions I've ever made was to say, "Thanks, but no thanks" to the traditional retirement savings model.

And be sure to check out Part 3 of this series - Investment Returns vs. Retirement Drawdowns.

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