I suppose if the money runs out I can always eat my dog …

I played a poker session at my local casino the other night. There was an old guy sitting next to me; thin and unkempt, his hands shook and he agonized over every decision. He had trouble reading the board due to his eyesight so sometimes we would read the cards out to him but he often misread what was out there. I took a big pot off him and he was down to his last chips but then he lucked out and won two massive pots in a row. He should have cashed out at that point but he was a terrible player and he kept at it until he lost everything. I had no doubt at all that he was playing with his pension money. When he stood up from the table he seemed to be sleepwalking out of there. His spot was filled almost immediately.

Peter Grant had a post up this week about what happens when a retirees’ money runs out. As people are living longer than ever before the amount of money needed to survive those extra 10 or 20 years of life is more than their parents needed who didn’t live quite as long.

This is going to be an increasingly common experience as retirees live longer, and as the rate of return on investments steadily shrinks.  At present, thanks to zero interest rate policies and other official measures, that rate has been reduced far below historical averages – and there’s no sign of improvement in the short to medium term.

Recently I was talking to a guy in his early 30s at a drinks gathering and we got onto the subject of second incomes. Almost all of his colleagues have some sort of second income going that they run from their home. The days of working in one job for 40 years and then getting a gold watch upon retirement are long gone. Nowadays people move jobs every 3 or 4 years. It’s almost expected of you in some professions. Couple that with the information on pension funds and negative interest rates at Peter’s post and you have a situation that will be very vulnerable for a lot of people.

A self-generated second income goes a long way to alleviating this vulnerability. Not only does it enable you to save and invest more while you are working, it also has the potential to grow and eventually become your main income. If you work for yourself then you never really technically retire. Particularly if you work from home.

Even if it doesn’t become your main income source it is still money that you can continue to generate after you have formally retired. This would make a huge difference to your bottom line. A fixed pension is exactly that – it’s fixed. Whereas something that was your second income can fluctuate depending on your skill level and expertise and the amount of time and effort that you put into it. And the one thing that retirees have in spades is time.

If you start exploring options for a second income while you’re young than you’re going to be very good at whatever it is that you decide on by the time you formally retire. It is also a good buffer if you’re ever out of a job or the economy takes a hit, as long as it can generate income even in a downturn.

Becoming old doesn’t mean that you will inevitably become powerless. It all depends on your planning and skill level. Don’t leave it all up to the turn of a friendly card. That only demonstrates a lack of both attributes. And it’s a long and lonely walk out of the casino when it doesn’t go your way.