Retirement is a financial state, not an age
When retirement is portrayed in popular culture, it's often a person golfing, sailing on a boat, or passing winter on the beach in Florida. There are many more generalities around retirement, but they all share the same thing: it's old people who don't work. In Canada, the normal retirement age is 65 and in the US, it's now 67. Those numbers are based on the age at which government programs start paying the retiree, whether it's Old Age Security and the Canadian Pension Plan/Québec Pension Plan 🇨🇦 or Social Security 🇺🇸. Because of those, that's the age at which people usually think of retiring.
Retirement is a rather recent concept in humankind's history. At the end of the 19th century, German Chancellor Otto von Bismarck wrote into law a program that would pay people over 70 years old an income, without them needing to work. Thus was created the idea of retirement. Before that, workers would simply work until their body couldn't anymore, and die. The program was much cheaper to run than one would expect: life expectancy was at 37 years old for men and 41 years old for women. Years later, the age requirement was lowered to 65 years old and today, the normal age of retirement is still the same. Life expectancy is another story, we now live much longer. In Canada life expectancy is 83, while it's 79 in the US, so we live longer but retire at the same age as 100 years ago.
Because of the bigger life expectancy, workers today need to prepare for their retirement. Social programs, at least in North America, are not made to subsist on but rather to complement a retirement income. Pensions are declining everywhere, with fewer employers offering them as a benefit to employees. That puts the responsibility of saving for their retirement back on the employee... and we all know how terrible everyone is at savings! All of these factors combined help explain why a vast majority of workers are ill-prepared for retirement. After all, if you do want to retire at 65, you need to have enough money to last 16 years if you end up "average". But what if you end up living longer? Some people live up to 100 years old, that's 35 years of income you'll need!
A question that comes up often is how someone will afford retirement. But that's the wrong question to ask. In today's world, you don't retire when you reach 65 years old, you retire when you can afford to. If you've saved diligently all your life and invested in a balanced and diversified portfolio, that could mean that you get to retire at 50 years old. If instead you've spent all your income paycheck after paycheck and saved nothing, you probably can't afford to retire at 65, or at all. Thus, retirement is a financial state and not an arbitrary age.
Now we're starting to get into semantics, but retirement can also mean different things to different people. The traditional definition is that you stop working, and that's what a lot of people stick to. But other types of retirement are becoming popular today, like retiring from your career and hopping into a lower-stress, possibly part-time job. Or picking up lower-paid but much more fulfilling work. The idea is that if you don't need the income, you can choose to do what you want, and so what if it pays a pittance or anything at all. Then again, if you're unprepared financially, that may not even be a choice.
Are you prepared for retirement? Will you be able to afford it when you want to, when your body stops cooperating, or before your last active years are over? If not, time to get serious about your finance! Start with our Introduction to personal finance article, where you'll go from zero to hero on your journey towards personal finance.
In a future article, we'll see how one can prepare for retirement. And before you start thinking this doesn't apply to you because you're too young, think again. The younger you are, the fewer savings you need to do thanks to the sweet sweet magic of compound interest.