Their thesis:

  • College educated workers, in general, will see their wages rise sharply from age 25 to 40 or so. It makes more sense for them to spend money, while young, on “life satisfaction” goals than saving for retirement.
  • Their incomes will rise sufficiently that they can delay their retirement saving until they are older and making much higher incomes.
  • Many such workers are currently saving more than they will need in retirement – better to spend and enjoy life when they can.
  • Less educated and less skilled workers do not see similar wage increases over time, and would be better off starting retirement savings earlier (or investing in developing better job skills).

We examine optimal retirement saving for young adults in a life cycle model. We find that for liquidity-constrained young adults who anticipate significant earnings growth, optimal retirement saving is zero. Specifically, we find that with a plausible wage profile for college-educated workers, retirement saving does not begin until the late 30s or early 40s, even with standard employer matching.

Source: Is Automatic Enrollment Consistent with a Life Cycle Model? | NBER

In a way, this aligns individuals financial habits with those of the Federal government. Borrow and spend money now, to be paid off with future dollars. Have your college loans funded by future taxpayers, for example.

Having grown up the son of parents who were teens in The Great Depression, I was taught depression era values. Avoid debt. Save, save and save. Work, work, work and save as much as you can. Repair, recycle and re-use. Do not spend money. I started my first job at age 10, worked and worked and saved money like crazy. (Today we would call it the FIRE movement – heh!)

Now at retirement age I am fortunate to be in a good financial position. But at what personal cost?

I gave up a LOT to get here – because I was stuck leading a life based on bygone Depression era values.

The pandemic (and therapy for brain injuries) taught me I need to live life for the present and not postpone everything to the future.

Unfortunately, this treatment was completed just prior to the pandemic nonsense – and my life, like everyone’s is on hold, waiting for a future that may never come.

Thus, I now believe young people should spend money on achieving life satisfaction goals. By the time you get old, chances are you will have sore knees or hips (or brain injuries!) or other health issues that may limit your opportunities to enjoy that which you postponed to the future. Do not be stupid like me!

(During my life I suffered one fractured skull with moderate TBI, plus 4 knock out blows – mild TBI – in conjunction with broken bike helmets and other broken bones – and one non-knockout concussion. Due to shitty health care, I was never treated for brain injuries until diagnosed with post TBI problems in my late 50s.)

Coldstreams Skeptic