Planning for retirement isn’t easy, but it doesn’t have to be horribly difficult either. Hard work and dedication can make just about anyone’s retirement dreams come true. Despite that, many Americans hamstring themselves when it comes to saving for retirement. From not saving early enough to spending too much money while they’re working, they fail to do what they need to in order to retire comfortably. Here are the top three reasons many Americans, intentionally or not, sabotage their dreams of retirement.
1. Plan on Getting Lucky
Getting lucky isn’t really much of a retirement plan. Whether you think you can hit the lottery and win it big, expect pension payments in retirement that any reasonable person can see won’t be forthcoming, or think that Social Security will enable you to survive, attempting to retire without a plan in mind is a recipe for disaster.
Just consider a back of the envelope calculation based on living off the 4% rule. That means that you expect to live off 4% of your retirement savings each year of retirement. So if your annual expenditures are $40,000 you’ll need $1 million saved up in order to retire.
Of course, that means that you first have to figure out how much money you’re spending every year. If you haven’t done that already, and don’t have a budget or plan to spend your money, you’re already a step behind. Once you’ve established your spending needs you then need to plan how to save up that million dollars or more that you’re going to need for retirement. Money like that doesn’t just magically appear, it’s the result of disciplined saving and savvy investment, not dumb luck.
2. Take on Too Much Debt
Our society today encourages people to get into debt from an early age. Millions of people take out student loans to pay for a college degree, apply for their first credit card in college, take out loans to buy a car, and then take out a mortgage to buy a house. The relentless push to consume, consume, consume encourages people to take on more debt than they can afford.
Debt has its uses, particularly when it comes to buying a house. But all too often people use debt not as a tool to enable the purchase of important assets that they need, but rather to purchase frivolous goods that they could do without. It’s no wonder, then, that American households are more indebted than ever. Student loans, credit card debt, auto loans, and mortgage debt are all either at record highs or pushing towards them.
Taking on debt that you can’t afford means that you won’t be able to save the money you need to be able to afford retirement. Debt payments and the interest on debt can suck away significant amounts of your paycheck. If you end up taking on more debt than you can pay back in a realistic time frame, you could severely compromise your ability to save for retirement.
3. Live Too Lavish a Lifestyle
One of the reasons so many households become so indebted is because they try to live too lavish a lifestyle. If you have champagne tastes but a beer budget, taking on debt to live the life you want may seem tempting. But while that may make you happy in the present, once the reality of those debt payments starts to bite, you may have second thoughts.
One of the ways many people get in over their heads is by buying a house that is too large for them to afford. They may think that real estate will continue appreciating indefinitely, which isn’t always the case. They may want to keep up with the Joneses and get a house that’s as big as all their friends have. But with any house comes the cost for maintenance and upkeep, and a large house means more potential repairs, higher property taxes, higher mortgage payments, and higher utility costs. In many cases a smaller house makes more sense for most people.
Many people also live in high-cost areas. That can’t be avoided in many cases, as high-cost metropolitan areas also offer higher salaries. But if you can move to a different area that offers a lower-cost standard of living, you may very well end up being better off there even if you’re making a little less money.
How to Save Your Retirement
An effective plan to retire then, means doing the opposite of all of these three things. The first thing you need to do is set out a plan for your retirement. What do you want do, where do you want to live, and how much will that cost? Once you’ve figured out how much you’ll need in the future, figure out how much you’re spending now and where you can cut costs. Then you can figure out how much money to save for retirement and where to invest it.
For many investors worried about the ongoing turbulence in stock markets, gold can be an ideal investment asset. Since the closing of the gold window it has outperformed stock markets, and in times of financial turmoil it rises in value while stocks decline. With a gold IRA investors can transfer assets from existing retirement accounts tax-free, allowing them to benefit from gold’s protective status while still enjoying the same tax advantages as traditional retirement accounts.
The second thing you need to do is minimize your debt as quickly as you can. Debt can be an albatross around your neck, keeping you from saving for retirement and still remaining as a major cost into retirement. The quicker you can pay down your debt, the quicker you can start to save more money for retirement. And the earlier you begin to save, the more money you will have saved up come retirement.
Finally, you need to live within your means. It can be tough to see other people living in huge houses, driving fancy cars, jetting off to exotic destinations, and eating out at the finest restaurants. But while on the surface they may look like they’re enjoying life and living the life everyone dreams of, behind the scenes they may be dealing with huge amounts of debt. If you don’t know what someone else’s finances look like, don’t get caught up trying to emulate their lifestyle.
Planning for retirement doesn’t have to be rocket science. Although many Americans don’t do a good job of it, many more are able to plan for retirement and retire successfully, living in comfort. Following a few basic ground rules and avoiding these three major mistakes can go a long way towards helping you fulfill your retirement dreams.