3 More Reasons Why the Conventional Idea of Retirement Is Flawed

A couple works online on the side business they started after retirement. Prostock-studio/Shutterstock

Commentary

In a recent article, I wrote about embracing “active retirement,” the idea of staying productive and maintaining your source of active income for as long as possible.

I argued that turning 65 shouldn’t be seen as the end, or the “final stage,” but rather as the beginning of a new journey. As life expectancy keeps increasing, preserving financial stability in retirement becomes a priority. It’s also a good time to explore new projects, hobbies, and learnings and work toward a higher purpose, such as self-realization, self-improvement, and spirituality.

Now, in case the idea of setting new goals, reigniting your drive or motivation, and/or keeping your job or occupation for longer doesn’t sound exciting to you, stay with me, because I would like to share three other important reasons that explain why conventional retirement might not be so good for many people, and support instead the idea of an active, productive, and purposeful retirement.

One of these reasons is financial. It relates to the risk you take in your investment portfolio, especially when you lose your active income source and your assets are not enough to provide sufficient passive income.

The second one relates to the value of your network and expertise and how you convert them into income in this new stage of life.

The third one relates to the beliefs and mindset of those who embrace free markets, personal freedom, and individual liberties in general. They will invite you to see retirement with a new and fresh perspective.

1. Giving Up Active Income Impairs Ability to Make Sound Investment Decisions

Epoch Times contributor and bestselling author Mark Ford has long argued that when you give up your main source of income upon retirement, your “ability to make smart investment decisions drops.” This happens, he says, because of your dependence on passive income, such as pension, interest, and dividends. And I would add, because of your inability to properly assess risk.

In my case, I’ve seen more than enough people taking more risks than they should in their portfolios because they are pressured to generate more income from it—income they previously lost or gave up.

For many, this situation has led to devastating consequences. Many turn to day trading, get involved in dubious cryptocurrency schemes, and/or start speculating with penny stocks, meme stocks, and volatile and hyper-leveraged products such as options, futures, FX trading, and CFD trading.

Pressured by the need to generate more income, investors attempt to get higher returns, but in most cases, it leads to losses. You want your pool of assets to last longer, not for just a short time, so be on your guard. If you need to generate more income, taking more risks is not the solution. Let me explain.

Attempting to get more returns (e.g., speculating in the stock market) implies taking substantially more risks. Managing risks properly requires knowing how to manage a wide range of factors, including diversification, position sizing, leverage, and volatility.

It also requires the ability to distinguish legitimate investment opportunities from scams, and having clarity on investment goals and horizon. Many retail investors aren’t prepared or trained for this. And when income falls short, investors get lured by the promise of easy profits and end up getting hurt.

Besides that, not only does your investment judgment get impaired, your general ability to provide for yourself is affected. In a way, you lose touch with the market and the sector or industry you have worked in.

2. Retirement Cuts You Off From Your Network and the Heart of Markets

As soon as you fully retire and hang up your hat, you—and your expertise—immediately disconnect from your professional network and the sector in which you worked.

You start losing touch with the market and how the forces of capitalism operate in your sector (i.e., how to serve and satisfy others’ wants and needs). This is particularly important if you change your mind later and want (or need) to come back. Or if you want to start a new business.

As time passes, it becomes more difficult to get into new endeavours or take advantage of business or consulting opportunities. Your expertise loses value.

I fully recognize that not everybody would be interested in staying longer in their line of work. Some could have lost their job and find it difficult to secure another one. That’s a reality.

But no matter your situation, role, or expertise, it is always a good aspiration to try to understand the nature of markets and how consumers make decisions.

How is money made in the sector or line of work you are in? What’s your role in the process, either as an entrepreneur, professional, or employee? What’s the contribution you make to get a piece of the reward (i.e. profits)?

If you want or need to make more money, start thinking about how to provide value to others. Consumers exchange money for value. This does not only have to do with the nature of economics and productivity (more on that below), but it’s about conceiving the world and putting the focus on others and not on yourself. You start seeing the world through the eyes of others—what others want to do or accomplish and how you can help.

On top of that, consider this: Even if you are financially stable and can afford to retire and live longer from passive income exclusively, there is a good chance that is because you have been successful.

You are likely an example of self-reliance, responsibility, prudence, thriftiness, and many other core values. You owe it to yourself to pass that example to new generations. I encourage you to stay in the game at your own pace. If you otherwise feel you still have homework pending in this regard, it’s never too late to catch up. You have time, start adopting an active retirement mindset.

3. The Conventional Idea of ‘Retirement’ Is Flawed

Last but not least, there is a third reason to remain active and productive. This one is more philosophical and relates to the worldview of any man or woman who embraces free markets and individual liberties.

According to author Paul L. Poirot, retirement is a myth. We are not supposed to retire. The idea of retirement, in a conventional sense, is fundamentally flawed. Or at least that’s what Mr. Poirot wrote in his 1950 book “The Pension Idea,” published by the U.S.-based think tank Foundation for Economic Education. A long time has passed since then, but his ideas remain fully valid.

In “The Pension Idea,” Mr. Poirot talks about self-reliance, productivity, and the value of work and thriftiness as the only and genuine sources of financial security for individuals in a free-market society.

He challenges the idea of “compulsory retirement” at 65 and pensions funded other than by the savings and investments of the individuals.

Discussing the role of pensions in retirement, or whether they will maintain purchasing power in the future, is beyond the scope of this article. They are pillars of retirement income in Canada and have their place in your financial planning. (Americans face other challenges with Social Security, but that’s for another day.)

But far beyond that, Mr. Poirot discusses a couple of considerations that can positively shape your view of retirement and the mindset to adopt at this stage of life.

First, at the time the idea of retirement and pensions came around, people weren’t supposed to live that long. They weren’t supposed to collect pension benefits for a long time. When the idea of pensions was introduced by German Chancellor Otto von Bismarck in 1889, workers were supposed to retire at 70 (that was later lowered to 65), but life expectancy was under 50 in most countries! In reality, most people were supposed to work and stay productive all their life.

Later in the United States, when the Social Security system was created in 1935, life expectancy was 60 for men and 64 for women, and benefits kicked in at 65. For those passing the threshold, benefits were supposed to be paid for a few years only.

What about Canada? When the Canada Pension Plan was introduced in 1966, life expectancy was 71.

In reality, back in those days, the idea of retirement and pensions was put on the table to get the older folks out of the workforce in order to make room for the younger folks, as not enough jobs were available for all. The goal was to avoid social unrest, not to stop productivity, which is the main argument in Poirot’s book.

The True Source of Security Is Personal Production

Mr. Poirot writes in his book that the “only security any person can have lies within himself.”

“If there be any enduring security for men in this world, that security rests in the preservation of individual liberty and private property - opportunity and incentive from which stem man’s willingness to keep on producing,” he continues.

“Any law which promotes idleness, or which tends to limit the constructive effort of any individual, is a bad law.”

And more importantly: “The standard of living in the United States rose above the world level, not through decrees limiting individual productivity, such as ‘compulsory retirement at age 65,’ but because every individual had the right to work and the right to have the product of his own labor, regardless of age, race, or other status. History has recorded no workable substitute for this incentive to production.”

Toward the end of the book, the author expands in relation to the “Security of Self” and the “Responsibilities of Free Men.”

“The surrender of individual responsibility for individual needs is the surrender of the right of an individual to be free,” he writes.

“The only security any person can have lies within himself. ... Unless he is free to act as an individual, free to be productive in his own behalf, free to determine what part of that production he will consume now and what part he will save, and free to protect his savings, there is no chance that he can find security anywhere.”

In plain words, your own security (and freedom) depends on yourself. Nobody else.

We live in a different world today, of course, but I believe taking individual responsibility and conducting actions in that direction is the right mindset to adopt.

In my view, it is part of living a purposeful, happier, and more abundant life.

What’s Next?

Don’t retire in a conventional sense. Pave the way toward living an “active retirement.”

Learn new skills. Start a side business. Set new goals, such as in the areas of health, career and money, family, character, personal growth, spirituality, etc.

Become more valuable to others. Learn how capitalism really works and find ways to create value for others (e.g., entrepreneurship, side business).

Keep learning and keep going, even if you don’t get immediate answers or results. I’m not saying it is going to be easy but it is a good ideal to aspire to, and you will learn and grow along the way.

And last but not least, the best legacy you can leave to children and grandchildren is not money but values, knowledge, and experience, so they face life with the right toolkit to succeed.

Share with them the principles and values that really matter in life, such as honesty, integrity, purpose, faith, constancy, responsibility, discipline, self-reliance, spiritual values, etc.

Help them to understand money and the value of work, savings, self-reliance, and compounding when they start earlier in life. Mentor them. They could be the first rich ones in the family if they start young.

As Mr. Poirot observed: “In a society of free men the aged will find protection, have always found it, by their own efforts or from those younger men and women who look to their elders for instruction and guidance in the ways of truth.”

It pays well to help and guide others.

Till next time!

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.