Making even one of these mistakes could mean you'll be eating ramen noodles in your golden years.
How’s that retirement fund going?
If you’re like a lot of workers, you may have doubts about whether you’ll have enough tucked away to avoid spending your final years living off ramen noodles.
According to the 2016 Retirement Confidence Survey prepared by Employee Benefit Research Institute, 61 percent of respondents said they were either “somewhat” or “not at all” confident that they would have the money they need for their golden years.
The reasons individual workers have for not being confident about their retirement savings can vary considerably, but if you make these seven mistakes, you’re virtually guaranteed to retire poor.
1. You’re too busy keeping up with the Joneses
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You can’t spend your whole life pretending to be rich and then think you’ll retire rich, too.
Living within your means isn’t glamorous, but it is smart. And being smart is what will make you a wealthy retiree.
Rather than upgrading your smartphone every two years and your car every three, try being content with what you have. It doesn’t matter if all your friends are remodeling their kitchens, if yours works perfectly fine, leave it be.
Having a realistic budget is the first step toward living within your means. If you don’t already have a budget, here’s our guidance on how to create an effortless budget you’ll stick to.
2. You’re not saving enough money
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When you’re not spending money to constantly upgrade your toys, you’ll have more money to save for retirement.
With traditional pensions all but extinct, it’s up to you — and you alone — to save up the cash needed to live comfortably in retirement. Don’t count on Social Security either. The average monthly Social Security benefit paid was a paltry $1,341 in January 2016.
Failure to save enough money is a sure way to retire poor. Ideally, 10 percent to 15 percent of your income should be going into a retirement account each month. And if you are behind in funding your savings goals, maybe you should be saving even more.
If you don’t have any extra money in your budget for savings right now, check out these nine suggestions to easily save $100 or more each month. Then, put that extra cash in your retirement fund.
If you start with $100 and save $100 a month for 30 years at an average interest rate of 5 percent, you’ll have around $83,672 extra at retirement time.
3. Your savings priorities are all wrong
Photo (cc) Chris Potter
On the other hand, you could be saving money but have your priorities all wrong.
Yes, college for the kids is important, but not at the expense of your retirement account. The kids can always get scholarships, jobs or even loans if absolutely necessary.
Make your retirement savings a top priority. Again, you should be setting aside 10 percent to 15 percent of your income in retirement accounts. Once you hit that level, you can start putting money in the kids’ college funds.
That may seem like a lot of money to save each month, but that’s why you aren’t keeping up with the Joneses, right?
4. You save your money in the wrong accounts
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Another common mistake is putting retirement money in the wrong accounts. A typical savings account isn’t going to cut it. Whole life insurance and annuities aren’t fabulous options either.
Instead, put that money in tax-sheltered retirement accounts such as 401(k)s or IRAs. These accounts come with tax benefits as well as stiff penalties for early withdrawals. (Avoiding such withdrawals is an essential component of ensuring your retirement savings are still there at retirement time.)
And by all means, if your employer offers a 401(k) match, put your retirement savings there first. You’d be a fool to pass up that free money. Money Talks News founder Stacy Johnson offers a few suggestions about how much to contribute to a 401(k) account.
5. You finance everything
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Today, retailers make it easy to buy everything – from furniture to a car – on a payment plan. However, you’ll never have money to save for retirement if you finance every purchase.
Rather than spend your money on interest, flex your self-discipline muscles and wait until you have enough saved up before buying whatever it is you want. If you keep yourself out of debt, you’ll be amazed at how far you can stretch paychecks. Then, you can live comfortably now and bank enough to live comfortably in the future.
6. You’ve let your credit score go
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If you do need to finance something — houses and cars are the usual suspects — you’ll want to have excellent credit to get the best interest rates and terms.
Otherwise, you’ll end up paying sky-high interest rates and sending precious money to your creditors that could be used to bolster your retirement account instead.
Neglecting to maintain your credit score by making timely payments is a major mistake that can lead to destitute retirement years. If your number is on the low side, use these tips to bring up your score quickly.
7. You’re a chicken when it comes to investments
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Finally, “no guts, no glory” can apply to your investments.
Sure, you don’t want to be dumb about your money. Placing 100 percent of it in volatile stocks a few years before retirement is a good way to land in the poor house. But at the same time, you want to be aggressive enough with your allocations to ensure your returns at least outpace inflation.
That means diversifying your retirement accounts. If you’re feeling a bit lost about how to do that and which funds to choose, read this article about how not to stress over your retirement account. While the article refers to 401(k) funds, much of the same advice applies to IRAs as well.
Why do you think so many retirees struggle financially? Share your thoughts in comments below or on our Facebook page.
Marilyn Lewis contributed to this post.