Sadly, there are many out there who do not save enough money when preparing for retirement. In fact, according to Zacks Investment Research, 72% do not save enough for retirement each month.
Also, according to a different survey done by Bankrate.com, 36% of people in the United States have absolutely NOTHING saved for retirement.
These numbers are very alarming.
I believe that saving for retirement is possible, and it’s something more people should be working towards and succeeding at.
While many believe the economy ruins their chances for retirement, in reality most retirement preparation problems have to do with the specific beliefs people have towards retirement.
There are many reasons for why a person might be horrible at saving for retirement. By looking at the various reasons for why preparing for retirement doesn’t seem to be working for someone, I feel that more people can be aware of and overcome their retirement preparation problems.
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Below are five different ways you may by hurting your chances for retirement. Continue reading if you are interested in preparing for retirement but want to avoid common mistakes!
1. You skip saving for retirement altogether.
Many people skip out on saving for retirement for many reasons. These include:
- Believing you don’t have enough money to save for retirement.
- Thinking that you’re too young to care about retirement or that it’s too late to start.
- Relying too much on pensions and social security.
No matter how young or how old you are, you should be saving and preparing for retirement. You never know when you will need it, and I am all for a person being in charge of their own retirement plan instead of relying too much on other sources of retirement (such as relying on social security 100%).
The fact that 36% of people in the U.S. save nothing for retirement year after year is a scary number. These people will all have to retire one day and I’m not sure what they will do when the time comes.
Now is a better time than never.
Side note: I highly recommend that you check out Personal Capital if you are interested in gaining control of your financial situation. Personal Capital is very similar to Mint.com, but 100 times better. Personal Capital allows you to aggregate your financial accounts so that you can easily see your financial situation. You can connect accounts such as your mortgage, bank accounts, credit card accounts, investment accounts, retirement accounts, and more, and it is FREE.
2. You take on debt for others yet don’t put money towards retirement.
I talked about this topic in the post Should I Ruin My Retirement By Helping My Child Through College? There’s rarely a week that goes by where I don’t hear from a parent telling me their story about how they cannot afford to live any longer or that they know they will not be able to retire because they are paying for their child to go to college.
If this is your situation, I say STOP. Unless you are on track for retirement, I honestly think you need to seriously think about what is important. Your child will be fine without your monetary support if you cannot afford it. Try supporting them in other ways such as finding a job, helping them find scholarships, and more.
You can take out loans for college, but you cannot take out loans for retirement.
3. You think you’ll never have to retire, so you skip preparing for retirement entirely.
Recently, I read an article about someone who made hundreds of thousands of dollars a year, had a monthly budget of around $30,000 (yes, MONTHLY!), and yet hardly saved anything. This person said they didn’t really feel the need to save for retirement because they enjoyed their job so much.
Assuming you will love your job forever can be a huge mistake, as it’s hard to judge what you will love decades down the line.
Also, you never know if something will come up in the future that will completely prevent you from working, such as a medical issue or some sort of major life change.
4. You misjudge how much money you’ll spend in retirement, which can greatly impact preparing for retirement.
Many people just assume they will spend less money in retirement, but that is not always the case. Medical expenses may come up, you might decide to travel more, and in truth, usually retirement spending is not too different than spending from before you retire.
You might find some ways to save money, but you are still going to spend money on housing (even if you pay off your home completely, you will still need to pay property taxes, utility bills, etc.), food, clothing, entertainment, and so on.
Some make plans to become super frugal after they enter retirement, but life doesn’t always work out so perfectly. If you want to eventually be frugal, just start now!
5. You use your retirement funds for expenses other than retirement.
I’ve heard of far too many stories where a person has taken money out of their retirement funds in order to pay for a vacation, a timeshare, pay off low interest debt, and more. When preparing for retirement, this is a HUGE mistake.
While I don’t know everything about taking money out of retirement funds, I do know that this can usually hurt you more in the long run. Taking funds out of a retirement account can usually lead to large penalties and paying extra towards taxes.
You should always just use your retirement funds purely for retirement.
Do you think you will have enough money to retire and how are you preparing for retirement? What age do you expect to retire? What crazy retirement mistakes have you heard of?
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Here in the UK we also have a similar issue with people not saving (enough) towards retirement. The government has just started a new policy which automatically means everyone working will be enrolled into a pension scheme which their employer must contribute towards. It means everyone should at least be saving something.. however the amounts set are pretty low and I fear too many people will think that saving 4% of their salary is going to be enough for a comfortable retirement.
Too many people have a nasty shock coming to them when they retire.
Yes, I too believe that too many people believe 4% is enough. It’s not!
There is a nasty myth that if you don’t have a couple of hundred dollars to put aside into your retirement fund that it is a waste of time to save. This is so far from the truth and people should put aside what they have regardless of how much they have. Have a little on the side saved is so much better than having nothing on the side. Just saying…
I agree!
The biggest mistake I see people making is not taking advantage of “time” and getting started early. Starting your retirement savings in your 20’s rather than your 30’s can make the difference between a six figure or seven figure nest egg by the time you’re ready to call it quits. Get interested and take advantage of your opportunity to capitalize on your youth!
Yes, saving earlier in life can mean a huge difference!
I think consistency is key. You just can’t throw some money here and there at retirement. It has to/should be done routinely, as in every month. We put some aside out of every paycheck and plan to do so for the next 25 years.
Good job Brian!
I pretty much try to assume social security won’t be there when our generation is ready to retire. Regardless, I’d rather be over prepared for retirement than under prepared.
Yes,I too would rather by over prepared.
In that case, save extra 🙂
I agree Thomas!
It’s certainly alarming just how many people forgo saving for retirement altogether. I think sometimes people who read/write for personal finance blogs have trouble comprehending the thought process. In all honesty most people are ill informed about what they need to do to properly save for retirement.
Yes, many people are definitely ill informed when it comes to retirement. It’s sad. They should require it in high school.
We will definitely be able to retire as long as we stick with our plan. We save a ton of money in our retirement accounts and we are debt-free. We just need to stay the course.
Good job Holly!
A huge mistake that I made initially was in thinking of retirement as simply retirement and not financial freedom. I assumed that I would have to work until I was 70, so that was part of my mindset. Once I shifted my mindset to financial freedom over retirement, it made saving and planning even more compelling because financial freedom does not have to be as far away as retirement, especially if I commit to it.
Yes, that is definitely a great way to motivate yourself to save.
These are some awesome tips, and great post to give those who need a boost to stop slacking on saving for retirement, like myself. Great pointers to really think about here, and I leaned.
Thanks!
Saving for retirement is so important and I wish more people understood that. So I will glady share this post and tell everyone I know, because those numbers you mentioned are so shocking. I’ve had many people tell me I’m too young to worry about retirement and I think that’s just a load of crap. No one is invincible and it’s foolish to not prepare for your future and save.
Yes, too many people think that being young means you can skip saving for retirement. That is a disaster!
I think the worst mistake is not contributing to a 401K program that has an employer match. You’re throwing away free money if you don’t contribute! But even if you don’t have a match, or are self-employer, you should still be contributing to a retirement savings vehicle. And, like you said, don’t use that money for anything other than actual retirement!
We’re in good shape for retirement since we started saving in our early 20s, which is something I wish everyone did!
Good job on starting young!
I wish all my previous employers had provided a 401K program. I’m glad I can take advantage of it now!
Good job!
I do believe most people will end up spending less in retirement. We plan to. We’ll have our home paid off, I’ll have more time to mow the lawn and do maintenance on our house, no “office clothes,” less driving, less eating out, kids are gone, etc.
Sure, you want to travel and add in some hobbies, but the general direction is you’ll spend less in retirement than your working years.
While it is possible to spend less in retirement, I think most people over estimate the amount of savings.