Living on Two Paychecks or on Too Many Expectations?

A good friend once asked me, "How come in the 1950s, you could support a family on a single paycheck, but now my wife and I both have to work to make ends meet?" I'd heard this question many times before. People give countless answers, from the Fed's inflationary policies to the lack of decent-paying manufacturing jobs. Usually, the explanations suggest macroeconomic shifts and major policy changes. And sure, those explanations are a part of it, but folks rarely mention increased expenses and heightened expectations.

Strip out unnecessary modern expenditures and make an apples-to-apples comparison between the cost of living today and that of the 1950s, and most of us could probably live on a single paycheck. The problem is not that our standard of living has gotten worse – it's that our expectations have far outgrown the reality of most paychecks.

Let's start with modern inventions; ultimately, most are conveniences. For example, there's your cellphone bill and monthly high-speed Internet connection. These are important tools in the modern age, but you could live without them. Then, think of the innumerable gadgets which occupy most of our homes, from iPads and iPods to laptops to flat-screen TVs to Xbox game consoles, and so on. Unless you really need these devices for work, it's hard to argue that one couldn't live without them. People in the 1950s survived without them – and so could you.

Let's move on to a bigger expense: the family car. Today, "fleet of cars" is usually more accurate. According to the Department of Energy, in 1950 there were 323 vehicles per thousand people in the US. In 2010, there were 811 vehicles per thousand people. Today, every member of the family has a car, if not one to spare – and we're not talking old junkers, but pretty nice cars.

Now let's look at the really big expense: the family home. Drive down to a middle-class neighborhood built in the 1940s or '50s. You'll see very modest homes – one-story buildings with a small bedroom for the parents and two to three closet-sized bedrooms for the kids, a living room, a kitchen, and a dining room. Depending on how lucky you were, there may have been two bathrooms instead of one. This cookie-cutter formula spanned the country. The houses weren't that pretty or incredible, but they got the job of raising a family done.

After your drive to that part of town, cruise into a middle-class subdivision built in the last ten or twenty years – it's a completely different picture. Every house is either a McMansion or made to resemble a smaller version of a McMansion. The kids' bedrooms in these things are bigger than most people's first apartment. Let's not even mention the size of the master bedroom; and of course nearly every bedroom has its own bath. Don't forget the additional rooms, such as "the playroom."

What's considered a middle-class lifestyle today isn't even close to the middle class of the 1950s. Add up all of these things: the gadgets, the cellphone and Internet bills, the brand-new cars for the whole family, and the mini-mansions – it's a ton of money that previous generations weren't spending. When someone lives this sort of lifestyle and wonders, "Jeez, why do my wife and I both have to work?" my answer is, " Of course both of you have to work. Look at your lifestyle." If you lived more modestly, the necessity of two paychecks might not seem so set in stone.

Now, I'm not suggesting that everyone should live a miserly, monastic life. I'm sure that if we could send cellphones back into the past, people in the 1950s would buy them too. I'm simply suggesting we take a second and reconsider what really makes us happy and fulfills our needs. Did people in the 1950s live unfulfilled lives without three iPads and a McMansion?

This reevaluation of spending priorities is especially important for retirement planning. If you want to work longer to continue spending, that's up to you. There's nothing wrong with that choice. However, at some point it can make you a prisoner of your own expectations. With an investment-newsletter subscription, we recommend investments to strengthen your portfolio. While managing your investments is important, what doesn't cost a penny is adjusting your expectations. It's a lot harder to earn 30% returns than to downsize to a lifestyle that only requires 8% returns.

When it comes to retirement, if you don't limit your expectations and put them into check, one of two things will happen. Either you will have to keep slaving away to bring in more income, or you'll fail to earn enough, and you'll always feel jilted and empty. Even if the first option works out, someone will always have a bigger yacht or house. At retirement, it's time to stop keeping up with Joneses (and stopping well before then can help you hold on to more of your hard-earned money). The combination of a fixed income and endless desires is a guaranteed route to misery and unhappiness.

Maybe you don't need to retire in a McMansion or have three houses in retirement or drive the newest Corvette. People lived very well on more modest incomes long before the current era of unlimited spending and endless expectations. Maybe – just maybe – the problem in our modern society is not a paycheck which is too small, but rather expectations which are too big.

While it is unrealistic to expect consistent investment returns of 30% or more, it is important to find the most secure vehicles to fund your retirement so that your lifestyle won't force you back into the workplace. This requires research, diligence, and active management of your wealth, but you do not have to do it alone.