With the cost of living going up and the minimum wage going down, the number of older Americans and poor retirees is on the rise.
Workers can barely stick their necks above the waters, and it forces people to retire poor. The situation is common, although this is more prominent in some countries than in others. When poor health care and social security benefits are added into the mix, being financially independent by 65 just seems hard.
“Money is not an essential thing in life but it's right up there with oxygen,” according to Zig Ziglar.
Money goes behind health, great relationships, and meaningful career in terms of importance, but as Ziglar says, “it's right up there with oxygen.” The sad fact of life, however, is that less than 5% of people will be financially free by the retirement age. Over 95% of the people will retire poor.
What Makes People Retire Poor?
In his excellent recording of The Strangest Secret in 1956, Earl Nightingale tracked the fortune of 100 individuals who started bright-eyed and busy-tailed at age 25. These people were all well motivated and eager to be successful. “By the time they are in their full retirement age, only one will be rich, four will be financially independent, five will still work, and 54 will be broke depending on others for life's necessities.”
These are alarming statistics and justifiably should provoke us to beg the question, “why are 95% of people broke in their retirement years?” Let’s put it another way, “why do 95% of people retire poor?”
Here are ten reasons that offer some answers.
1. They Never Clearly Define Financial Freedom
Freedom can have different meanings for different people. So, attaining financial freedom can have varying definitions for individuals.
The straightforward definition of financial freedom is – Passive or security income must be greater than or equal to our lifestyle expenses.
To attain financial freedom and avoid being poor at retirement, the passive income from your assets must be higher than or equal to the income you require in funding your chosen lifestyle. Most people retire poor simply because they have no clear definition of financial freedom or a concrete financial plan for their life.
2. They Never Make Freedom an Absolute Must
Many people are too lazy to be productive. If you ask a hundred people how they intend to get rich, most will tell you they would love to win the lottery, marry an Heir (Heiress) or inherit a fortune. That mindset means most people don’t have retirement savings because they don't have a plan.
Sadly, hope is not a strategy, and to attain financial freedom and retire rich; you need to be relentless in pursuing your goals.
3. They Are Unaware of the Power of Their Subconscious Mind
Ever come across the sentence, “rich people think like rich people and poor people think like poor people?”
Believe me, we all have a self-concept. You have a self-concept for your weight, your business intelligence, and your communication skills. Equally and critically, you have a self-concept for your current financial reality.
It's quite fascinating how many people who have won the lottery or become highly-paid athletes lose it within a short period. Conversely, many people who become bankrupt regain their lost fortune quickly. Your subconscious mind will set up your financial thermostat. Similar to a thermostat that controls the temperature of a room, your financial thermostat dictates your financial reality.
If you are serious about becoming financially free at retirement, you must first examine what financial files are stored in your subconscious mind. If you have the wrong data, you will continually have an adverse financial reality. That can easily result in you having zero retirement income. Give yourself a mental checkup to see where you are.
Harv Eker sums it up appropriately when he says, “the only way to change the temperature in the room is to reset the thermostat.”
4. They Are Surrounded and Influenced by Other Poor People.
Many people cannot realize the influence their reference group has on their destiny. Ziglar once said, “you can't be flying with the eagles if you're scratching with the turkeys.”
If you are serious about attaining financial freedom long-term, it's essential to surround yourself with smart advisers to help with your retirement plan. At a very minimum, you need a dynamic accountant — equally, a banker who understands you and your business. You also need access to financially free people.
Learn from them, model them. Imitate them. Success always leaves clues. So learn from the people who retire rich and as well hear from the horse's mouth – gain insight from the people that retire poor as well.
There is a common saying that says “birds of a feather flock together.” You can proactively begin today to choose to surround yourself with financially free people.
5. They Never Confront the Brutal Facts of Their Financial Reality.
If you ask people about their financial status, most will tell you they don't want to talk or think about it. Many will tell you they will get a financial adviser or financial planner to handle their finances but mostly do nothing about it.
Unopened brown envelopes and bank statements are the two most frequently unopened letters not just in the United States but in the world. The reason for this is that there is an inherent aversion within us to confront the brutal facts of our finances.
To supercharge your pursuit of financial freedom, it is instructive to handle your finances yourself and confront the brutal truth about them. One of the surest ways to retire poor is to avoid facing the truth about your finances.
6. They Don't Save.
Many people will retire poor simply because they have no golden goose, and those that do frequently murder it in the name of immediate gratification.
Do you remember the fable of the Golden Goose? Long, long ago, this family came into possession of a goose that laid Golden Eggs. After some time, the family got greedy and killed the golden goose to extricate more golden eggs. Sadly, by killing the Golden Goose, they also killed the producing mechanism for their income.
If there is ever a habit that everyone should adopt, it should be the habit of saving. Sadly, millions of people find one excuse or the other not to save. Without saving, your financial dreams might be in a faraway land.
Pay Yourself First!
In his classic book, “The Richest Man In Babylon,” George S. Classons advises that we should pay ourselves first. Even though there will be hundreds of excuses for not doing it, that might be the most significant step you will take toward attaining financial freedom.
How often do you see workers buying new cars, going on a luxurious Hawaii vacation or moving to an expensive neighborhood when they received a pay raise? People who can’t practice delayed gratifications will most likely retire poor.
7. They Are Unaware of the Power of Compound Growth.
“Compound growth is the eighth wonder of the world” – Albert Einstein.
Compound interest can make or break you financially. It can make your life merry or miserable.
Compound interest can grow your wealth tremendously and increase your debt incredibly.
8. They Work for Money as Opposed To Having Money Work for Them
Usually, you manifest income in three ways;
- Earned Income – This is the income that comes in as a paycheck or a salary for a product or service rendered.
- Portfolio Income – This represents income derived from stocks, shares, investments, and pensions.
- Passive Income – This is income that comes while you only work part time for it or only during your spare time. An example would be rental income, royalties, patents, online products, or services.
In his book “Retire Young Retire Rich,” Robert Kiyosaki suggests that earned income is the worst source of income for several reasons. First, it's the highest taxed income. Second, you work hard for it, and it absorbs all your valuable free time.
Third, there is limited leverage in it in that the only way to earn more is to work longer and harder. Finally, there is precious little residual value in this income in that each day you have to start afresh again.
A significant difference in the mindset between the rich and poor is that rich people have money to work for them as opposed to working for money. This is the true path to financial freedom.
If you want to retire poor, keep working for money without an alternative source of income.
9. They Lack the Knowledge, Skills, and Coaching To Become Financially Free.
It's said that knowledge is power. If that's true, only a few are ready to pay the price to gain that knowledge. Poor people are the set of people with the worst reading habit. They find it challenging to invest in financial education.
Without a solid financial education, the attainment of financial freedom will be a very rigorous task. As the saying goes, “Life is tough, but you can make it tougher by being stupid.” Attaining financial freedom takes hard work. You can make it tougher by being financially ignorant.”
It is crucial to gain and sharpen your financial skills to be financially free. Luckily, with the internet, the acquisition of knowledge has become infinitely more accessible. There are no excuses now.
To generate consistent income from investing, you will need to gain good financial knowledge and you have to sharpen your skill with good practice. The knowledge acquisition can be through books, financial games, seminars, and business coaches.
It is straightforward for employees part-time or full-time to gain more practical skills and knowledge than to gain financial knowledge. This keeps most people in the rat race and retiring poor.
10. They Have No Plan, or They Lack the Will Power To Follow Through.
There are a lot of differences in the strategies used by all the great investors. However, they all have two things in common; they all had a plan, and they stick to it. It is imperative to have a plan for how you are going to attain financial freedom.
You will doom your quest without a plan. Planning is essential and even a poor plan is far better than no plan at all. (At least you know it's terrible, and you can work on it to make it better).
Most people never map out a plan for their retirement, and the most significant percentage of those that do, do it too late. To avoid retiring poor, you need a plan early in your carrier, one that will take you to your financial destination.
You can study the strategies of great investors and choose the one that appeals to you. You must stick with it. Consistency of purpose and practice ultimately wins out in generating ongoing profits.
Wrap It Up!
In their excellent book, “The Millionaire Next Door,” Tom Stanley and William Danko highlight how two families, living in the same type of house and employed in the same job end up with totally different financial scenarios. By their late 40s, one is financially free. The other is deep in debt and despair.
The reason is not education or opportunity or lucky breaks. It's straightforward; it's a matter of choice. To retire rich or retire poor is a choice, and nobody can make such a decision for you.
You have yet another chance today to choose the path you want to follow. The path to becoming wealthy and the path to remaining poor. So, choose wisely.
More Articles From Wealth of Geeks
This article was produced by Wealth of Geeks.
Featured Image Credit: Pexels.
Steve Adcock is an early retiree who writes about mental toughness, financial independence and how to get the most out of your life and career. As a regular contributor to The Ladders, CBS MarketWatch and CNBC, Adcock maintains a rare and exclusive voice as a career expert, consistently offering actionable counseling to thousands of readers who want to level-up their lives, careers, and freedom. Adcock's main areas of coverage include money, personal finance, lifestyle, and digital nomad advice. Steve lives in a 100% off-grid solar home in the middle of the Arizona desert and writes on his own website at SteveAdcock.us.