There are some standard rules and recommendations when it comes to preparing for retirement. Things like:

• Start saving as much as you can as early as you can
• Contribute to your company’s 401(k), at least to the match (it’s free money!)
• Open a Roth IRA for added withdrawal flexibility when you retire
• Calculate the nest egg you’ll need to accumulate for the standard of living you want
• Take out 4% of said nest egg every year and live only off of that

It’s all good advice when the market is doing what the market has historically done. But if you’re near retirement right when something apocalyptic happens (like the mortgage crisis in 2008) and you followed these rules, then you’re probably going to be a little pissed off.

Because there are thousands of people out there that followed the rules and aren’t going to be able to retire the way they’d planned.

This has some financial experts thinking that it might be time to retire the old-school retirement mindset and move on to a new retirement paradigm—one that doesn’t involve saving up a whole bunch of money, investing it, and then living off the proceeds when you’re 65 and no longer want to work.

This Reuters article lays out the case for a focus on “other forms of capital.”

The goal is to focus on other assets that can help bridge the gap during retirement if money is in short supply—assets that aren’t being risked in the market.

“If they don’t have the money, they have human capital like skills and education, and social capital in terms of friends, neighbors or a church. All these things help,” says Larry Cohen, director of Consumer Financial Decisions.

Even if you don’t have the money, investing in things that aren’t stocks and bonds can pay off. If you learn a skill that can save you money, like gardening, then that can help a little bit during retirement.

And being a part of a community can also help with reducing costs—you can buy in bulk or use someone else’s car.

Then there are skills that can actually generate money, like blogging, consulting, or freelance writing. I mean, you have to spend your retirement doing something, right? Another thing you could do is teach. After 60+ years, there have to be a few things you’re really good at or know a lot about. If you had a career in the automotive industry, you could teach a class on how to repair cars or something like that.

I like this idea. It actually does two useful things:

1. It helps make retirement a bit easier financially and
2. It helps answer the eternal question of “what the hell am I going to do when I retire?”

Traveling and playing golf are good answers, but that still leaves you with a ton of time. I like the idea of a 65-year-old Carlos writing an occasional magazine article here and there, teaching a computer class to other grandpas, and then going on a long walk to stay healthy (and keep health-care costs at a minimum).

In theory, that means I don’t have to stress out so much about accumulating a million-dollar-plus nest egg to be able to “do nothing” after I retire.

If retirement experts can somehow factor these types of activities into the classic retirement calculations, couldn’t I put away less money right now as a 30 year old? Which means I could go on skiing trips or fly to Australia to go scuba diving. If I need less money when I’m older, I should (theoretically) be able to cut down on some of my contributions and use the money right now, while I’m still a strapping young man.

Is this a totally irresponsible and knee-jerk reaction to a stock-market plunge or do you think there’s something to this “new retirement?”

Image by Dawvon

Tags: 401(k), retirement, Roth IRA

Had an interesting conversation with some co-workers the other day. I was trying to gauge how much money it would take for people to take a job that’s traditionally frowned upon.

I’m curious to hear what other people think.

Here’s the scenario:

Would you take a job at a fast-food restaurant (assuming you aren’t in that industry already) in exchange for a tripling of your current salary? The catch is that you would have no opportunity for advancement (you would have the entry-level job of casheering, cleaning, etc.) and you have to sign up for a 10-year contract.

You break the contract, you stop getting paid. If you agree, you basically have to stay for 10 years.

The Upside

• The money, obviously.
• One co-worker mentioned you would save money on clothing since you have a uniform you’d be wearing every day for the next 3,650 days.
• You get to work with people, which can help make it less monotonous.
• No pressure to advance…you’re in for the next 10 years.

The Downside

• Locked in for 10 years (we’re adding in that you can’t “get fired” even though I know that makes no sense…it’s an exercise for God’s sake).
• No advancement.
• Dull days ahead.
• Cleaning bathrooms will be a step down for a lot of people.
• No career prospects after the 10 years are done since you basically have a black hole in your resume.

Most people didn’t have to think twice, they said they would do it without even hesitating. This surprised me so I tried to slow them down to actually think of what this would be like. To work in something they have no interest or passion for and to be locked in for 10 years.

They didn’t care. The tripling of the salary clinched it…I’m not sure if that makes me naive or makes them greedy and heartless.

What’s your take?

Image by Mike Baird

Tags: doing it for the money, fast food

I’ve been reading a lot of this lately:

The American Dream has been shattered. It used to be that a hard-working person could pretty much bank on getting a job after school. And if they worked hard at it, they knew they would make enough money to buy a home and support their family. They would have insurance, they would be able to provide the things the family needed, and they would be able to have a comfortable retirement. Now the housing bubble has burst, unemployment has spiked, and the American Dream no longer exists. It is gone.

Is that really the American Dream—that if you worked hard at your job you would pretty much have a guaranteed “decent” lifestyle with a comfortable retirement?

Because I always thought the American Dream was this notion that anything is possible. That if you work hard and give it your all, you might hit the jackpot and become very successful. I thought the American Dream was that notion of potential. Of possibility.

That it was possible, not guaranteed.

Nothing is guaranteed—regardless of how hard you work—except for the chance at living the good life. In other countries, a large swath of the population never even gets a lottery number—they don’t get to play. But that’s how I always viewed the American Dream: everyone has a shot at it, no matter what.

It got me thinking about old-school industries like the car industry. There used to be factory jobs where people showed up to work, put in their 30 years or whatever of hard work, and then were taken care of for life. Sweet retirement pensions meant that their future was guaranteed.

Now we know that this type of perk is unsustainable. That a company can’t carry all that shit on their books and stay profitable—it doesn’t make sense. This isn’t the death of the American Dream, it’s more like the awakening of reality. A pension sounds great and all, but to expect a guarantee like that seems unrealistic to me.

Maybe it’s because I’m from Guatemala. Nothing is guaranteed down there. You might have all your savings in a bank and then poof—turns out someone stole all the money and you’re never getting it back.

Ever.

Go to court to get it back? Please, you’re wasting your time. Press charges? Wasting your time and whatever money you have left.

Nothing is guaranteed down there. People work their asses off and they know that everything could be taken away tomorrow. It’s happened in past and that’s the shadow that everyone lives in. Everyone: rich, poor, middle class. Doesn’t matter.

That’s why Guatemalans save money, unlike Americans (until recently, anyway). They’re constantly worried about what might happen tomorrow so they save money or buy land—anything that might seem like a safer way to hold value.

There are no guarantees. It feels like this country is starting to get the gist of this idea and it’s a rude awakening.

But the American Dream? I don’t see that changing one bit…this is still the place where anyone can make it. Right now it’s just harder than it was before. But just because nothing is guaranteed, it doesn’t mean the dream doesn’t exist anymore.

This post was included in the MoneyCrashers Personal Finance Roundup.

Tags: american dream, guatemala, pensions

Here’s the what last season’s NBA MVP had to say after signing his 5-year, $94 million contract extension:

“I think I live a humble life,” Rose said. “Of course, I know I’ll be able to afford whatever I want, but other than that, there aren’t too many things that excite me. Me winning is one of the things. Me being around my family, that’s another. Money, that’s the last thing I think about.”

To those that don’t regularly follow him, this isn’t a surprise. All Rose likes to do is work on his game and win.

That’s it.

It’s refreshing to see someone so driven by his passion to get rewarded with both accolades and a ton of money. Sometimes you really can be successful by doing what you love and giving it your all.

Tags: contract extension, derrick rose, passion