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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AMEN.
I’m really glad I got on the retirement-saving bandwagon early in my 20’s. As a result, I’m entering my 30’s with tens of thousands of dollars saved. It’s HUGE — and I was one of those people that didn’t think I needed to save anything (because of all the reasons you listed above!) I just did it because PF blogs told me to 😉
God bless the PF community because I’m set up to be a rich old lady now =p hahaha
Haha good job!
Great post! Having helped our two kids thru college, I totally agree, don’t use your retirement money for their education! We made a plan to cash flow college, it wasn’t easy and we did expect our children to pay for half of their tuition costs. As a result both of our college grads are debt free. Hard work pays off!
Good job!
We have started but more then likely will have no where near enough to live comfortably Thanks for sharing the articles I will have to go read them
Welcome Linda 🙂
I’m definitely behind. I appreciate your very informative articles.
Welcome 🙂
I saw many of my elderly family members make these mistakes, and it’s been so sad to watch them struggle through their retirement years with next to nothing. I think another common retirement mistake is that people don’t realize that often times their retirement plans change throughout the years. We always thought that Rick would work till 60 and then retire. Well, he wants out at 50 now as opposed to 60, so we are working on ways to make that happen, but it would’ve been much easier had we planned for a changing plan.
Yes, too many people do not realize that things can change. Good luck Laurie! I’m sure your family will do well.
We fell behind a bit when I stopped working full-time, and therefore lost any sort of employer match. I do have Roth IRAs, though, which helps. Also, paying off our debt is more of a priority now, since we don’t want to have to use retirement savings for that later. But it’s important to find the right balance, so we don’t lose the advantage of compounding.
I think a mistake that people make is assuming they’ll need less money when they’re retired. The chances of needing pricey prescription medications, long-term care, and home modifications increase dramatically after retirement. There may be a period od lower costs, but the longer we live, the more we need to shell out for healthcare.
Yes, exactly! I’m not sure why people think they will start saving hoards of money once they reach retirement.
It’s amazing how many people save nothing at all for retirement. I hear so many saying they will never retire so they don’t bother saving. That is fascinating because there are so many ways you can be FORCED into retirement but no one ever thinks about those. I’m definitely glad I started saving in my twenties and already have a little start.
Good job on starting!
For years I really didn’t save anything towards retirement. I recently opened up an online account that is specifically for retirement.
Good job!
These days, many employers are automatically enrolling workers into the company 401(k) plan. While that has helped boost participation rates, it has also given some employees a false sense that they are saving enough.
Yes, I agree.
interesting post
Thanks Dina!
Thankfully, my hubby is all over the retirement stuff and has made sure we will be prepared with a few different income streams. I’m so happy he was into it when we were young and I didn’t care so much. So far, we haven’t had to touch our retirement accounts and hopefully won’t have to. College for the kids is a whole different story.
Good job!
Great points here! I find the main challenge to be the fine line between enjoying life now AND planning for retirement. My father, who saved a lot, died before he could even enjoy retirement. On the other hand, I plan to live a very long life, and that will require money… 🙂
Yes, the same thing happened to my father. A healthy balance is important.
This post came at the perfect time! My husband and I were just talking yesterday about re-evaluating our retirement plans. Thanks for the information!
Welcome Pamela 🙂
Exactly!
Yes!