The US Retirement System Is Broken (But You Can Still Retire Early!)

As you might already know, Amon and I retired before we turned 40! And we achieved this by taking control of our finances and developing our very own retirement plan. If there’s one thing that really sticks out to us about retirement in the US, it’s that the US retirement system that so many Americans follow and rely on is deeply flawed.

The parts of the “US retirement system” that I’m talking about include:

● Pensions

● Social security

● Medicare

● Employer-sponsored retirement accounts

I’m going to share these flaws with you, so you can avoid the pitfalls of the system, and learn more about successful retirement and the possibilities of retiring early as we did!

1. It’s Too Focused On Age

So much of the US retirement system focus on the age you should retire, instead of the amount of money you need to do so. This often leads to people who believe that even while being passive and not putting the work in to save, they will still magically have enough savings to retire because they are the “right” age.

Instead, people should be focusing on the amount of money they need to retire. That way they can take active steps toward reaching that amount. By identifying how much money you need to retire at the beginning of your career, you have a tangible goal and know what efforts you need to make. Focusing on the age you want to retire doesn’t do much without concrete financial goals.

2. It Turns Everybody Into An Investor Without Knowing It

If you use a 401k or Roth IRA as your retirement account, then you ARE an investor, and you need to act accordingly. Let’s think back to the 2008 stock market crash: A lot of people lost half of their 401k balance because they panicked and sold too low, then tried to buy back in later. The people who came out of that stock market crash with their accounts intact were the ones who approached the situation with an investor's mindset. They didn’t panic - in fact, some of them invested more.

One of the problems with the US retirement system is that it’s designed for people who are good at investing, but the US is not a country that educates people about investing. This means that the majority of people who invest in a 401k or Roth IRA don’t know how to use them properly.

3. You Don’t Learn How To Withdraw Your Retirement Funds

If you’re able to save up enough money in your retirement accounts to retire, you should understand how to withdraw those funds properly. You need to know:

● Which of your accounts to draw from and in what order

● How to avoid unnecessary taxes or reduce tax

● How to avoid penalties

● How much money you will be living off while you figure all of this out

The US retirement system just isn’t designed to teach you about these things. And that’s a problem because people need to know how they should be spending from month to month. Otherwise, they’ll end up spending too much too quickly, or too little to live a fulfilling post-retirement life.

4. Healthcare

The US system is designed so that most people’s healthcare is paid for by their employer. As a result, lots of people hold back on retirement because they don’t want to deal with the associated costs of healthcare alone. It’s a terrible situation, particularly for people who work jobs that take a toll on their physical health, but they continue to work for the healthcare benefits.

People need to know that they can overcome this by building healthcare benefits outside of their job, instead of being held hostage by employment.

5. The Social Security System

I don’t believe the US social security system provides enough for someone to retire comfortably. If you’re planning to rely on social security when you retire (if it still exists when you do), you’re also going to need to find alternate ways to make money that will fund a comfortable retirement.

Often times people who are banking on social security have not built up any other assets that will support them. Those same people usually end up working as long as they can to get those benefits. This leads me to the US retirement system's final flaw…

6. Most People Don’t Build Up Other Assets

People that contribute to their 401ks and Roth IRAs are investing in the stock market, which is great! But there are so many other options to support your retirement, including investing in real estate, creating a business, or finding other passive forms of income.

The US retirement system isn’t great, but there is a lot you can do outside of it to ensure you get the kind of post-retirement lifestyle you want. I recommend considering everything I’ve shared so far - prepare to combat the flaws in the system and use this knowledge to build your own independent retirement plan. Don’t rely on the system to do it for you!