YOLO vs. FOMO: You Don’t Have to Choose Between Living Life Now and Being Prepared for Retirement Later—in Fact, You Shouldn’t
If there is anything that this past decade has taught us, it’s that millennials should not be allowed to use social media. We have created some seriously annoying trends. To wit, YOLO and FOMO are two such examples that we are never going to live down.
Ignoring our obnoxious need to create and share trending memes, there is something to be said of these two attitudes, You Only Live Once and Fear of Missing Out.
This modern day—I did not say well-represented—Shakespearean dichotomy plays itself out in any number of fashions, and especially for millennials who are at a critical stage in life in which they are beginning to realize their earning potential at the same time as being straddled with crushing amounts of debt and a far too distant but much too realistic, and impossible to ignore, retirement plan.
It is a tough road to navigate. How are we supposed to know if we are headed in the right direction, going at a good speed, or even what our ultimate destination is?
You Don’t Want to Miss Out on the Market
According to NerdWallet, 70% of American investors experienced regret over their investment strategy in 2019. The penultimate year in a historic decade was one of the best of the 2010s, with the S&P 500 Index finishing up 28% (the strongest since 2013), the NASDAQ up 35%, and the Dow Jones gaining 22%. Tough to be upset about those numbers. The same can be said about 2020, the year that will be forever its very own meme, despite everything that happened on the world stage. The S&P 500 Index returned more than 15% and the Dow Jones 6.8%.
But 35% percent of investors wish they had invested more in 2019, and A LOT of people are upset that they got out altogether in 2020. Of course, everyone is going to want to take advantage of a strong market year, but it begs the question: How much should millennials be investing for the future at the expense of living their life now when they are entering into their peak earning years?
Ask a Baby Boomer, especially a financial planner, and the answer is unsurprisingly simple: save as much as you can now for those retirement years. Baby Boomers traditionally worked for retirement in what is known as the “deferred life approach.” As indicated in the name, the mindset was to work hard and save as much as possible with the goal of being able to travel, relax, read, play golf, etc. in retirement. In other words, wait until you are older to have fun.
Yet younger people are not necessarily sold on the “deferred life” strategy, in which they work 30-40 years saving every penny and then do all their travel, adventure, and leisure when they reach retirement age. In fact, there is strong evidence to suggest that millennials are going to have to work well beyond today’s proscribed “normal retirement age.” A 2019 study by researchers from the Brookings Institution and Johns Hopkins University point to several indicators, including raising debt, slow career starts, changing economic landscape and labor markets, buying houses, and starting families later in life. Tough to face that reality and still be OK with accepting our parents’ status quo. Especially now that we have just spent the past year amidst an existential and world-changing historical event.
Add this to our all-around different world view and prioritized values as a consequence—or advantage—of growing up in the midst of the digital revolution, and we are faced with a legitimate agenda that comes with “adulting.”
- Why would a millennial want to miss out on life experiences now when the outlook for retirement is starting to creep into the 70s? YOLO.
- At the same time, why spend my money now when I can invest in the market and take advantage of those big years like 2019? That compounding effect becomes very powerful as the balance of those retirement accounts grow. FOMO.
You Only Live Once AND Fear of Missing Out
Opportunity cost is unavoidable. The trick is to come up with a long-term plan that addresses both the YOLO and the FOMO:
- YOLO: Taking advantage of the life experiences as they present themselves within the context of a carefully thought-out financial plan and living life to its fullest. I’m not saying to go hard and live like a rock star but take that trip to Thailand that you have on your bucket list.
- FOMO: Saving for the quiet retirement that is comfortable but not luxurious. From clients to family members, I have learned that as people reach their 70s they are not troubled by a Fear of Missing Out. In fact, most prefer to travel some, but spend the majority of their time with the kids and grandkids. I don’t mean to say that older retirees do not want to travel and go on adventures, just that they have a more refined sense of what is important to them than a younger person does—naturally.
There is no reason why you have to choose between happiness now and happiness later. Taking that dream trip will add color to the canvas that is your life and, when done prudently and within the bounds of your long-term financial plan, will not require you to sacrifice a rewarding retirement.
Balance the Long-Term with the Short-Term, and Bill Yourself for the Long-Term
So how do we conquer our Shakespearian dichotomy? A balanced approach will allow you to stop chasing after a stupid meme and start living your purpose-filled life. First, never use the ‘words’ YOLO and FOMO again. I have personally put them to rest and vow to never allow them to resurface. Second, and equally as important, classify your retirement savings as a monthly bill and send those first dollars into a Roth or 401(k).
Ask yourself, how much money do we want to live on in retirement? The traditional approach here is to take 80% of your income, but that is tough to pin down as income will likely increase over time. A simpler approach is to start with $60,000 per year and adjust from there.
For this exercise, assume that at retirement age (age 65 for now) your house is fully paid off and there is no car payment. How does $5,000 per month in after-tax money sound? For some it will be more than enough, while others will find it difficult to not spend more than that. For most middle-income families, no house payment, no car payment and the kids are out of the house, $5,000 to $6,000 per month in spending money goes a long way. Remember, we are talking in today’s dollars so these numbers will adjust with inflation over time. Some form of Social Security will cover a modest portion of this number and your retirement portfolio needs to fund the rest.
To keep things easy, and conservative, let’s say that a 30-year-old plans to retire at age 65 and live to age 90. Assuming an 8% return on investments while working and then 5% in retirement, it is safe to say that a good goal would be $1,000,000 in retirement savings in today’s dollars. That leaves a roughly $500 bill that is owed to the retirement account each month. Whatever amount you think you need to fund that comfortable, but not luxurious, lifestyle in retirement should be treated the same as rent/mortgage, car payments, etc. A non-discretionary expense for the future. Do this and you won’t miss out on those good market years. The rest can be spent on this one life that you have to live. Enjoy it.