Why Saving For Retirement Is A Big Mistake

Perhaps one of the biggest reasons people dread the subject of retirement is because they believe it depicts the time period in which they will have to live off their savings until they hopefully outlive their money.

This creates the expectation of having to come up with a specific amount of money that you need to have saved by the time you approach retirement age.

Saving for retirement presupposes that at a certain point in your life, you are to live off a chunk of money that you are supposed to have saved in your 20s, 30s or 40s, since you will not be working anymore to add on to it.

Unfortunately, this is a wrong approach that actually keeps you focused in the wrong direction.

The Water Tank Analogy

Let us use an analogy of a water tank. You spend all your working life saving for retirement (in this case filling the water tank) in the hope that when you retire (after the water reaches a certain level), you can live off the savings (open the tap for good).

It doesn’t take a genius to figure out that if the tap is open and the tank is not being refilled with water, it will soon be empty. In most cases, this can happen faster than you think.

If you are emptying your savings account without adding money into it, you are getting poorer and in no time you will be out looking for a job again to be able to meet your basic needs.

Does it therefore not make sense to spend more time working out ways in which you can have a system that automatically keeps refilling your water tank so you needn’t worry about  how long before it dries up?

Is there such a system?

Yes, there is such a system and that is the good news. Instead of trying to save for retirement, you need to focus on investing for retirement. This may sound basic but it creates a very big difference.

Let us take another example. If you anticipate that you will need $5,000 in retirement income each month and by the time you retire, you have saved up $100,000,  your money will only last you a measly 20 months before you are wiped out.

However if you had a $100,000 investment that generated $5,000 a month, you could practically live on that for as long as you want because your investment is earning you money without losing its value.

It is the same $100,000 but the different strategies create a totally different outcome.

Forget about saving for retirement and focus on investing for retirement instead. Build, create or buy an asset or assets that will generate cash for you on a regular basis.

Once you change your mindset from saving for retirement to investing for retirement, you will focus on buying and feeding the goose that will lay golden eggs for many years to come.

This will allow you to work on a plan that will put you in control of your financial destiny, and having to come up with a specific amount of money you should have saved before retirement will become irrelevant.