2864: [Part 1] Traditional Retirement Is Dying. This Is How I’m Preparing for a Future Without It. by U-Ming Lee

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[00:00:40] [SPEAKER_00]: This is Optimal Finance Daily. Traditional Retirement Is Dying. This is how I'm preparing

[00:00:46] [SPEAKER_00]: for a future without it. Part 1 by U-Ming Lee of U-Ming.Medium.com. And I'm your host and

[00:00:55] [SPEAKER_00]: personal finance enthusiast, Dianna Merriam. I have a bit of a longer post, so I'll read

[00:01:01] [SPEAKER_00]: the first half today and then finish the rest for you tomorrow. So with that, let's dive into

[00:01:07] [SPEAKER_00]: part 1 and start optimizing your life. Traditional Retirement is Dying. This is how

[00:01:17] [SPEAKER_00]: I'm preparing for a future without it. Part 1 by U-Ming Lee of U-Ming.Medium.com.

[00:01:26] [SPEAKER_00]: Traditional Retirement, the idea that one will voluntarily stop working at some predetermined

[00:01:33] [SPEAKER_00]: age and live off of their accumulated savings until death, is becoming increasingly unrealistic.

[00:01:41] [SPEAKER_00]: The majority of the younger workers, those under the age of 50, should not expect to retire.

[00:01:47] [SPEAKER_00]: Not in the traditional sense at any rate. The nature of work is evolving. It's moving away

[00:01:54] [SPEAKER_00]: from traditional 9-5 employment and working for decades with the same employer who will

[00:02:00] [SPEAKER_00]: contribute to your pension pot. This trend makes the traditional retirement model look

[00:02:06] [SPEAKER_00]: increasingly out of touch. Thus, planning for the new age of retirement requires careful

[00:02:13] [SPEAKER_00]: thought to avoid the shock of being rendered unable to work but unprepared for that

[00:02:19] [SPEAKER_00]: situation. These plans should include life decisions that are not solely financial in nature.

[00:02:26] [SPEAKER_00]: I don't intend to retire ever, but I recognize that I'll have to stop working when my physical

[00:02:31] [SPEAKER_00]: or mental abilities no longer allow me to. As a result, I've considered several necessary

[00:02:38] [SPEAKER_00]: steps to take to ease the transition. Life insurance is mandatory, but don't overcomplicate

[00:02:46] [SPEAKER_00]: it. Life insurance is like eating kale or leg day at the gym. You know it's good for you,

[00:02:53] [SPEAKER_00]: but it's not something you think about much. Life insurance is commonly thought of as something

[00:02:58] [SPEAKER_00]: that provides money to the surviving spouse and children after death. As a result,

[00:03:04] [SPEAKER_00]: younger people tend to disregard it because they believe it isn't necessary for them

[00:03:08] [SPEAKER_00]: while they're still young and don't have a spouse or children. When my parents were

[00:03:13] [SPEAKER_00]: they thought this way about life insurance. In fact, they never bought any insurance their entire

[00:03:19] [SPEAKER_00]: lives. They believed that they could save enough money to cover their medical expenses

[00:03:24] [SPEAKER_00]: in their later years. They were basically gambling with their lives. They were betting

[00:03:30] [SPEAKER_00]: they wouldn't be in an accident or suffer a life-changing illness when they were younger.

[00:03:36] [SPEAKER_00]: In their case, the risk paid off. But I can easily think of many other instances

[00:03:41] [SPEAKER_00]: in which entire families were ruined because the primary breadwinner was uninsured when

[00:03:47] [SPEAKER_00]: disaster struck. Play stupid games, win stupid prizes. Avoiding life insurance solely to avoid

[00:03:56] [SPEAKER_00]: paying premiums will save you money in the here and now. But if disaster strikes,

[00:04:02] [SPEAKER_00]: and it will sooner or later, you will have nothing to cushion the blow. What to do?

[00:04:09] [SPEAKER_00]: Purchasing life insurance is a no-brainer. When you're young and healthy, the benefits of life

[00:04:14] [SPEAKER_00]: insurance sound pretty theoretical. We all like to think we're invincible when we're younger.

[00:04:20] [SPEAKER_00]: But in your youth, the premiums you pay for the privilege of being insured

[00:04:24] [SPEAKER_00]: are insignificant compared to when you buy them later in life.

[00:04:29] [SPEAKER_00]: So there's little reason not to buy life insurance. Think of life insurance premiums

[00:04:34] [SPEAKER_00]: putting money aside for a rainy day, something you want to set and forget.

[00:04:40] [SPEAKER_00]: Keep it simple. Insurers enjoy including sweeteners, like investment-linked plans

[00:04:47] [SPEAKER_00]: and other complex arrangements, to make insurance packages more marketable.

[00:04:52] [SPEAKER_00]: But most of these deals benefit the insurer, not you. These extra features are frequently

[00:04:59] [SPEAKER_00]: accompanied by hidden fees and restrictive lock-in penalties that tip the scales in

[00:05:04] [SPEAKER_00]: insurers' favor. Stick to a simple life insurance plan that you can understand

[00:05:10] [SPEAKER_00]: and resist the urge to add too many features. Build your career around substance instead of

[00:05:17] [SPEAKER_00]: chasing fashionable trends. Traditionally, retirement involves working until you reach

[00:05:23] [SPEAKER_00]: retirement age, then receiving a lump sum or an annuity payment to replace your salary.

[00:05:30] [SPEAKER_00]: This arrangement worked well for several decades. Nowadays, it's increasingly disconnected from

[00:05:35] [SPEAKER_00]: reality. For one, the classic employer-employee contract is becoming obsolete. Gone are the days

[00:05:44] [SPEAKER_00]: when someone could count on having a good paying job for decades and being cared for by their

[00:05:49] [SPEAKER_00]: employer once they retire. Instead, employers are increasingly looking for creative ways to

[00:05:56] [SPEAKER_00]: classify their workers as independent contractors, rather than full-time employees to reduce employee

[00:06:02] [SPEAKER_00]: costs. Uber is well known for exploiting this legal loophole, effectively treating its drivers

[00:06:09] [SPEAKER_00]: as temporary substitutes until self-driving cars become a reality. Furthermore, an increasing

[00:06:16] [SPEAKER_00]: number of people are reconsidering full-time and office-based employment, a trend that has

[00:06:22] [SPEAKER_00]: accelerated since the pandemic. This suggests that the traditional assumption that one will

[00:06:28] [SPEAKER_00]: work and earn a steady income for decades before retiring is unworkable for an increasing

[00:06:34] [SPEAKER_00]: proportion of people. Sure, one could piece together solutions to replicate the pension

[00:06:41] [SPEAKER_00]: plans that people in 9-5 jobs have always had access to. However, this is still an imperfect

[00:06:48] [SPEAKER_00]: solution for freelancers whose incomes are much more volatile. What to do? Hear that on tomorrow's

[00:06:56] [SPEAKER_00]: episode. You just listened to part one of the post titled, Traditional Retirement is Dying.

[00:07:07] [SPEAKER_00]: This is how I'm preparing for a future without it by Yu Ming Li of yuming.medium.com.

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[00:08:19] [SPEAKER_00]: And a big thanks to Yu Ming, who's one of the newest authors in our network.

[00:08:24] [SPEAKER_00]: Yu Ming, a former IT and finance professional, transitioned to remote work 15 years ago

[00:08:30] [SPEAKER_00]: and now focuses on personal finance writing. He's preparing to launch a newsletter to help

[00:08:36] [SPEAKER_00]: readers ease the transition to retirement outside the traditional nine-to-five job paradigm.

[00:08:42] [SPEAKER_00]: I have to disagree that the idea of retirement is dead. I'm surrounded by people who have

[00:08:49] [SPEAKER_00]: voluntarily stopped working at some predetermined age and live off of their accumulated savings.

[00:08:56] [SPEAKER_00]: While I agree that we no longer have access to pensions and most of us won't work for the

[00:09:02] [SPEAKER_00]: same employer for decades, we don't need those things to save and invest enough for

[00:09:07] [SPEAKER_00]: retirement. We have access to tax-advantaged investment vehicles for our retirement savings,

[00:09:13] [SPEAKER_00]: whether we pursue W-2 or self-employment. Yes, insurance is important for protecting your

[00:09:20] [SPEAKER_00]: assets, but this is not going to fund your retirement. The main ways people invest for

[00:09:26] [SPEAKER_00]: retirement is through the stock market, real estate, or building their own business.

[00:09:32] [SPEAKER_00]: I also don't think retirement has anything to do with one's age. It's a savings target that you

[00:09:38] [SPEAKER_00]: could reach at any age, and that's why I think it's a good thing that we're no longer beholden

[00:09:44] [SPEAKER_00]: to pensions in order to retire. We have so much more control over how much we save,

[00:09:51] [SPEAKER_00]: how that money is invested, and how long it will take us to get to our target net worth

[00:09:56] [SPEAKER_00]: for retirement. But we're just halfway through the article, so for now, have a happy rest of

[00:10:02] [SPEAKER_00]: your day and a great start to your weekend, and I'll see you tomorrow where we'll finish up this post

[00:10:08] [SPEAKER_00]: and where your optimal life awaits.