7 Reasons That You Could Retire Poor

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

Photo (cc) by QuasicPhoto (cc) by Quasic

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

Photo (cc) by 401(k) 2012Photo (cc) by 401(k) 2012

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 PotterPhoto (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

Photo (cc) by Ken Teegardin/ www.SeniorLiving.OrgPhoto (cc) by Ken Teegardin/ Senior Living

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

Photo (cc) by GotCredit Photo (cc) by GotCredit

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

Photo (cc) by Photo (cc) by ER24 EMS (Pty) Ltd.

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

Photo (cc) by Photo (cc) by postbear eater of worlds

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.

Stacy Johnson

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  • MayB

    In number 2 of this article, it states that a person should put $100. a month into an investment that pays EIGHT PERCENT INTEREST!! Well, would someone PLEASE tell me what investment pays that? I would really like to know because I’m already retired, and VERY willing to invest in something…..even if it pays 5% a month!! Presuming it is legitimate, and safe. Anyone??

    • marketfog

      I have had good luck for many years by investing in a no load mutual fund tracking the Russell 2000. I believe in the adage, “sell in May” and get back in in October or later. My exact entry and exit points are determined by the DJIND performance using Mac D. The annual “Stock Traders Almanac” will give you a lot of guidance.

      • MayB

        Looked into this right after you posted it, and it does sound very feasible, however I am more inclined to making an investment and leaving it alone. Thank you for taking the time to respond.

      • Frederick Mitchell


    • ghortej

      8% is commonly quoted as the “average interest rate of the stock market”.

      But more specifically, the average return of the S&P 500 index from 1928-2013 is 9.55%. Or from 1964-2013 it’s 9.89%. Or from 2004-2013 it’s 7.34%.

      So to answer your question: put your money in an S&P 500 index ETF for a long time and you’ll average somewhere around 8%.

      You can find the raw data here: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html (Look at the geometric averages. Arithmetic averages will be higher, but don’t represent what you’d have earned.)

      • MayB

        Thank you SO very much for this information. I shall definitely look into it and in all probability move my savings from the bank over to it, as it sounds exactly what I have been looking for. Greatly appreciate your responding to me, truly.

    • Trina Collins Goodwin

      ….8% per year, not per month.

      • MayB

        Yes, I am aware that it is 8% a year… which is fine. A lot better than what the bank is paying me for using my savings.

    • BigDog40

      8% is fantasy. Go to Vanguard. Lowest rates. V Good Returns. Tell me about the 8% returns of an ETF during 2006, 07, 08. If you have a bunch of money, send 50% of it to Vanguard or T Rowe Price, Buy some Verizon, At&t, reinvest the dividends, [No charge to re-invest at Vanguard.
      Take the stock appreciation and have a nice day. There are some great REITS out there that are paying 6 and 7%. The best concentrate on medical. Get a good Investment Councilor that specializes in retiree’s for the rest of your money. Be sure to check him or her out carefully first.

  • Michelle Huffaker

    Major medical expenses, major car repairs, kids’ braces… those are the big ticket items that always keep us behind the eight ball. No matter how much we plan for an emergency, they always hit at once and we’re back in the red.

  • Donna

    I agree with mayB. I don’t believe there are ANY investments paying those kind of dividends and shame on this Money Talks News to give such false, misleading information to anyone!

    • ghortej

      I just responded to mayB with a link to some raw data. 8% is the “average interest rate of the stock market”, but more specifically, it’s historically about what you’d earn buying an S&P 500 index ETF and holding for a long time.

    • MayB

      Exactly! And the most irritable fact is that the banks, where the average person is probably keeping any hard-earned savings, is using these monies to invest in much higher yielding investments for themselves.

  • Trina Collins Goodwin

    The article and people posting a reply here are talking 8% a *year* not 8% a month. It is a pretty typical number to use when grinding out future retirement plans and not impossible to attain when investing long term.

    • MayB

      Yes, I fully understand that it is 8% a year.

  • MayB

    At the age I am….83….it probably is too late to invest into annuities, but I do appreciate your suggestion. Perhaps someone younger than I will be able to use your offering. as it is a good one.

  • BigDog40

    You forgot ROTH ira’s. Put the money into high dividend stocks like AT&T and Verizon and let the dividends reinvest forever. Withdrawals are federal tax free. (Do it at Vanguard. No charge to re-invest dividends into more shares.) It’s a money tree after retirement. Do it SOON!

    • MayB

      Thank you for the great suggestion! I already have a ROTH Ira, (with Vanguard), although there is not much money in it. I will, thanks to your suggestion, transfer from the lackluster stock-results it is getting over to either AT&T and/or Verizon. Thanks again!!

  • Bill

    Worthy guidelines. You missed the “big” one, the elephant in the room: too many people don’t make enough discretionary income. Hence, the decline of the middleclass and their income. Worse, if the middleclass doesn’t spend enough (e.g. retail sales) the economy tanks. We’re playing a partial zero-sum game.

    • bigpinch

      The middle class is not only the source of the economy’s real wealth but also the source of our society’s stability.

  • bigpinch

    I have a sterling credit score, one that would entitle me to the best interest rate on a car loan if that’s all the criteria a lender would consider. But, I’m semi retired so my income is a lot lower than it was, previously. I recently had to replace one of my automobiles, so given the fact that I wouldn’t get a good interest rate, I paid cash and saved that interest for myself.

  • Ronald Wilder

    My wife and I lost all our retirement to a “trusted” financial advisor of 12 years and his partner. With bankruptcy, foreclosure, disability, and fixed income all in the mix, we are, at least, credit card debt-free. A word to the wise:
    “Where large sums of money are concerned, it is advisable to trust nobody.”- Agatha Christie

  • Morgan Freeman

    Hard to save when you live in the most expensive province that costs a fortune for gas,insurance and groceries…plus I’m a single mom of 3 on a variable income so any suggestions would be helpful to plan for my retirement..

    • Don1357

      Look for a partner. There are competent, good people in the same boat as you–and maybe even better off. The old saying, “Two can live as cheaply as one” may be your solution. And, there may be some unexpected fringe benefits as well. Using this strategy for your future in your case may be better than trying to save enough by yourself for retirement at this time in life. Just be sure you get someone who is honest, trustworthy, caring and unselfish. Use your time in this search wisely. Don’t settle for glitter. Look for solid. You won’t find one in a singles bar and probably not on the Internet. Look in church, perhaps. Take references from trusted friends and give it some time to know the individual. And don’t get somebody just like you. Different qualities of strength make for a great relationship and with this sort of partnership, you and your kids will have to struggle far less than you are doing now or in planning for that future retirement.

  • Y2KJillian

    Would like to point out that not only should you fund a 401K, you should fund a Roth IRA as well. The 401K is tax-free when you put it IN (that is, you earn the money), but you must pay income tax on it when you take it OUT. The Roth is the opposite: tax is paid when you put it IN (that is, when you earn the money), but income tax free when you take it OUT. We had a savings account that acted like a Roth, but without the possibility of good growth. If we had it to do over, we’d fund both a 401K AND a Roth, as well as a savings account. .

  • LagunaLady27

    It is important to remember that as one nears retirement, all investments should be moved into safer accounts. My sister failed to do this, and lost it all. Sometimes it’s wise to be a little chicken.

  • Don1357

    But what those who love ramen noodles? I think we may be a small but important group! What’s your advice for us? Certainly there needs to be thought given to the future, but it should not preoccupy one beyond reason. Life is about living, now, not so much in the future. Much in the future will take care of itself. And, in the future, there will be other things to consider that will make living cheaper and easier than one might speculate. I’d like to see an article that gives some of the many advantages of/for retiring–the older years, where there are savings in clothing and transportation, AARP, time to work in the yard or travel, etc. The attitude, “Life is awful, and then you die” can sure ruin some great years in the future and those spent NOW worrying about the future.

    • bigpinch

      Ten years ago, the best friend of my life (besides my wife) whom I’d known for more than 40 years, retired from a job that paid very well. For 10 years, he worked on improving his guitar playing, his writing, and his fishing skills. This past Sunday, I eulogized him at his funeral. He died, rather quickly, of pancreatic cancer. He was 71 years old
      My friend lived modestly and was generous to his loved ones. He will be missed. I’ve been on about the same track for the last five years. My farm is paid off. My little shack will never make it to Better Homes and Gardens. I like where I am living and have very little debt for anything.
      A lot of times we hear people criticize the “1%” for being so wealthy. Our President has criticized them for not recognizing when they have “enough.” Well, may be, but it sounds a lot more like jealousy than heart-felt concern.
      What about the other 99%, at least that portion of them that are enslaved to consumerism; that can’t recognize when they have “enough?” But still have to have the latest and greatest of whatever gadget, car, house, and other status symbol they desire. How are they more righteous than the “1%?”

      • Don1357

        Amen, Bigpinch. Sounds like you could write that article I requested in my comments. I did worry too much unnecessarily about whether I could make it in retirement. It didn’t help that I had two suits brought against me for well over $1,000,000 each just before I left my job. But, I felt it was time, and I took the plunge. It’s been nearly 20 years now and I wonder why I didn’t do it much sooner–although, except for the suits, I really loved my job in public service. Two years later, the suits were settled in my favor without my being financially affected, and I have enough for a good life–enjoying my home, loving the friends and neighbors in our new location and with plenty of time for working actively in my church. My wife and I have known each other for going on 60 years, and that’s great, too.

        • bigpinch

          My wife and I have been together since 1979 and I am the congregational leader in our small, rural church. I’ve lived all over the United States, Western Europe, and the Far East. I’ve been swimming with manatees, had an intimate dinner with our former POTUS. None of this because of any talent or merit that I possess, by only by the grace of God. Life may be hard but it has its rewards.
          Doing what is right and surrendering one’s will to the Lord results in many amazing things.

  • katieb

    I have never posted on one of these before, but I am constantly fearful my husband and I aren’t doing enough. We are both 28, and for the last two years we have been stocking away $600/month each in our individual 401k’s and then each maxing out our Roth IRA’s. However, since we didn’t start till 26 or so, I am worried we are behind. I know there will be some years where we can’t contribute as much as we are currently, but I hope it will be enough. I keep reading that you should have at least one years salary in retirement savings by the time you are 35, and we are both on track to make that happen. Is that accurate? Can I stop worrying at that point? Anyone else have any targets that seem like they are reasonable??

    • Use your brain

      My husband and I couldn’t start until 30-we finally went with a Dave Ramsey ELP (endorsed local provider) after a big investment house charged us huge fees and treated us like nobodies. Our ELP meets with us to check our progress, review our goals and to answer or explain any questions we have-he also explained with our paperwork how the big investment house would constantly move us from fund to fund so they could charge us fees instead of within a fund to avoid them. We are on schedule to retire at 55 at this point-and we can check that at any time-huge peace of mind especially for my husband who didn’t think we could do it.

      • Use your brain

        We do max out our Roths, and my husband’s 401 as much as possible (No retirement benefits in my profession). Our house will be paid off in 5 years or less and our cars are both paid for. But we also don’t have kids-love our nephews and nieces to pieces though!! Hasn’t always been easy-but not as hard as it could have been.

    • Jason

      You are doing great and are likely way ahead of your peers. I wouldn’t worry about the X times salary at X age calculations, most I’ve seen are unrealistic for younger people. My wife and I made some big financial mistakes in our early 20’s (within a year after graduation we had collected 3x my salary in debt). We got serious about getting out of debt at age 24 (used Dave Ramsey’s steps) and my wife went back to school (5 years of no income from her and tens of thousands in expenses) We were able to seriously start saving at age 30 and 8 years later we are seriously looking at being able to retire at 45.

      My advice:
      *Keep doing what you are doing and bump those savings rates up as you are able. (You still have a lot of room in your 401K as you can each invest $18K a year.
      *Don’t succumb to the temptation to bump your lifestyle every time you get a bump in pay. Save that money.
      *Stay away from debt. Debt is just borrowing for today against your future self.
      *Stuff doesn’t buy happiness. The new wears off really quickly.
      *Invest your money don’t just save it. The stock market is your friend and you have a very long investment window. We have ridden through 2 downturns so far and each time the market comes back in a year or two. Make your plan and then stick with it. Every recession back to the great depression the market has come back and then continued to grow. When you invest in something like a S&P 500 index you are betting that the 500 largest companies in the USA will be worth more in 25 to 50 years than they are today. That is a pretty safe bet.
      *When you invest pay attention to expense ratios (the cost of the investment). Even a 1% difference will make a huge difference in 25 to 50 years.
      *Be very wary of “financial advisors”. Unless you are paying them directly they are not your advisor they are the salesman for the company they represent. My wife and I got burned (by Ameriprise) early on went thankfully we had very little savings. My parents got taken for a whole lot more when they were in their 60’s and retiring.

  • Ted

    62 with 500K and a 1675 monthly SS check if I quit now. Think I’ll hang in, as I’ll have 700K and a 2100 monthly SS check in two years. Or…800K and a 2300 monthly check and Medicare in three.

  • Georgia Wessling

    I did not start saving until I was 50 and still deep in cc debt. I started my 457b with a small amount and began putting my raises in. At that time, in the 80’s and 90’s, we were getting them annually. I have 2 small retirements and my SS, which I thought was high, but is actually a little below average. I worked until I was just shy of 69. I had also worked 4-5 p/t jobs while in a full-time job to help pay off the debt. The month after I retired we paid off our final debt – a car we had bought 6 months earlier. I have never looked back. I am debt free, own my home and car and am able to give. I read one time that cc companies call people who pay off their credit every month as “dead beats”. Wow. Glad I am one.
    I have also never invested. My sister put all her savings into stock in the company she worked for – Lucent. They advised their employees to do this. Well, in one small amount of time the stock went from $65 a share to $.65 a share. When I retired, the interest on my savings was 8-9%. If I never got a cent of interest, my 457b would still last me at least 23 years by taking out the minimum each year. When I retired I had less than 1/100th of what they said I would need to retire comfortably. Guess they were wrong.

  • lesleep

    Does that 10-15% include your 401k or is that about & beyond the max of that?

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