Has anyone done an expected value calculation, or otherwise thought seriously about, whether to save for retirement? Specifically, whether to put money into an account that can’t be accessed (or is very difficult to access) for another twenty years or so, to get various employer matching or tax benefits?
I did, and came to the conclusion that it didn’t make sense, so I didn’t do it. But I wonder if anyone else came to the opposite conclusion. I’d be interested to hear their reasoning.
ETA: To be clear, I have AI timelines in mind here. I expect to be either dead, imprisoned, or in some sort of posthuman utopia by the time I turn 60 or whenever it was that my retirement account would unlock. Thus I expect the money in said account to be worthless; thus unless the tax and matching benefits were, like, 10X compared to regular investment, it wouldn’t be worth it. And that’s not even taking into account the fact that money is more valuable to me in the next 10 years then after I retire. And that’s not even taking into account that I’m an altruist and am looking to spend money in ways that benefit the world—I’m just talking about “selfish spending” here.
There’s a lot of detail behind “expect to be” that matters here. It comes down to “when is the optimal time to spend this money”—with decent investment options, if your satisfactory lifestyle has unspent income, the answer is likely to be “later”. And then the next question is “how much notice will I have when it’s time to spend it all”?
For most retirement savings, the tax and match options are enough to push some amount of your savings into that medium. And it’s not really locked up—early withdrawal carries penalties, generally not much worse than not getting the advantages in the first place.
And if you’re liquidating because you think money is soon to be meaningless (for you, or generally), you can also borrow a lot, probably more than you could if you didn’t have long-term assets to point to.
For me, the EV calculation comes out in favor of retirement savings. I’m likely closer to it than you, but even so, the range of outcomes includes all of “unexpected death/singularity making savings irrelevant”, “early liquidation for a pre-retirement use”, and “actual retirement usage”. And all of that outweighs by a fair bit “marginal spending today”.
Fundamentally, the question isn’t “should I use investment vehicles targeted for retirement”, but “What else am I going to do with the money that’s higher-value for my range of projected future experiences”?
Very good point that I may not be doing much else with the money. I’m still saving it, just in more liquid, easy to access forms (e.g. stocks, crypto.) I’m thinking it might come in handy sometime in the next 20 years during some sort of emergency or crunch time, or to handle unforeseen family expenses or something, or to donate to a good cause.
My decision was pretty easy because I don’t have any employer matching or any similarly large incentives. I don’t think the tax incentives are big enough to make up for the inconvenience in the ~60% case where I want to use my savings before old age. However, maybe a mixed strategy would be more optimal.
Has anyone done an expected value calculation, or otherwise thought seriously about, whether to save for retirement? Specifically, whether to put money into an account that can’t be accessed (or is very difficult to access) for another twenty years or so, to get various employer matching or tax benefits?
I did, and came to the conclusion that it didn’t make sense, so I didn’t do it. But I wonder if anyone else came to the opposite conclusion. I’d be interested to hear their reasoning.
ETA: To be clear, I have AI timelines in mind here. I expect to be either dead, imprisoned, or in some sort of posthuman utopia by the time I turn 60 or whenever it was that my retirement account would unlock. Thus I expect the money in said account to be worthless; thus unless the tax and matching benefits were, like, 10X compared to regular investment, it wouldn’t be worth it. And that’s not even taking into account the fact that money is more valuable to me in the next 10 years then after I retire. And that’s not even taking into account that I’m an altruist and am looking to spend money in ways that benefit the world—I’m just talking about “selfish spending” here.
There’s a lot of detail behind “expect to be” that matters here. It comes down to “when is the optimal time to spend this money”—with decent investment options, if your satisfactory lifestyle has unspent income, the answer is likely to be “later”. And then the next question is “how much notice will I have when it’s time to spend it all”?
For most retirement savings, the tax and match options are enough to push some amount of your savings into that medium. And it’s not really locked up—early withdrawal carries penalties, generally not much worse than not getting the advantages in the first place.
And if you’re liquidating because you think money is soon to be meaningless (for you, or generally), you can also borrow a lot, probably more than you could if you didn’t have long-term assets to point to.
For me, the EV calculation comes out in favor of retirement savings. I’m likely closer to it than you, but even so, the range of outcomes includes all of “unexpected death/singularity making savings irrelevant”, “early liquidation for a pre-retirement use”, and “actual retirement usage”. And all of that outweighs by a fair bit “marginal spending today”.
Fundamentally, the question isn’t “should I use investment vehicles targeted for retirement”, but “What else am I going to do with the money that’s higher-value for my range of projected future experiences”?
Very good point that I may not be doing much else with the money. I’m still saving it, just in more liquid, easy to access forms (e.g. stocks, crypto.) I’m thinking it might come in handy sometime in the next 20 years during some sort of emergency or crunch time, or to handle unforeseen family expenses or something, or to donate to a good cause.
“imprisoned”?
It’s not obvious that unaligned AI would kill us. For example, we might be bargaining chips in some future negotiation with aliens.
My decision was pretty easy because I don’t have any employer matching or any similarly large incentives. I don’t think the tax incentives are big enough to make up for the inconvenience in the ~60% case where I want to use my savings before old age. However, maybe a mixed strategy would be more optimal.