7 Reasons You’ll Retire Poor

Make one of these seven mistakes and you could end up 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 Employee Benefit Research Institute 2015 Retirement Confidence Survey, 41 percent of respondents say they are not too or not at all confident they’ll have enough money for their golden years.

The reasons 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

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, read Stacy Johnson’s advice on how to create an effortless budget you’ll stick to.

2. You’re not saving enough money

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 benefit was a paltry $1,294 in 2013.

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.

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 8 percent, you’ll have nearly an extra $137,000 at retirement time.

3. Your savings priorities are all wrong

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

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. Stacy Johnson offers a few suggestions about how much to contribute to a 401(k) account.

5. You finance everything

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.

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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


      • Frederick Mitchell

        Do you set entry and exit time frame, i.e. 3 months, 6 months, etc. And do you invest in an index fund only like the S&P 500? Thanks. This was good information.

    • 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!!

  • Y2KJillian

    Up until age 36, we did nothing about retirement except husband worked at a company that did and does still pay a small monthly pension after 10 years employment. He managed to get those 10 years in. THEN at 36, his next job offered a 401K and we began putting in enough to earn the full employer’s match, upping the percentage slowly year by year. We hung on in the same way through the big recession of 2008 and suddenly last year had enough, with the small pension, a paid-off house, no debts, a frugal lifestyle, etc. to retire using pension and some of our 401K funds. We put the rest into investments, planned for several years of pension, a low-level withdrawal and the ACA–and in four years we’ll start taking social security. It was a kind of a rush as I wasn’t prepared yet, but suddenly it made total sense. We are loving it. Not doing anything in particular, just living, we each have some separate and some mutual hobbies, and sometimes we wonder how we ever had time to work!

  • disqus_pPB66ncilc

    There is ONLY ONE reason we will retire poor- POLITICIANS, POLITICIANS, POLITICIANS!

    • nitemare2

      You blame politicians for your failure to do the simple things you grandparents told you to do. That’s sad and typical liberal ideology of its someone else’s fault. Did they tell you to over extend and under save?

      • disqus_pPB66ncilc

        I should have worded my comment differently because I am NOT overextended and I have NOT undersaved! It’s the politicians’ RECKLESS SPENDING that will affect those TRYING to save AND those who have RETIRED! When you’re dealing with other peoples’ money it’s very easy to spend, spend, spend!

        • nitemare2

          I agree the reckless spending of the President and congress takes a toll on people it does not affect the way we do stupid things that cause us to be “poor.” You are in control of what you spend or waste every day on Starbucks or other fast food. You are in control of what you buy on credit when you can’t afford it. That is what caused the crash in 2008, people buying homes they could not afford to pay for, although the govt gave them the rope, they hung themselves. If all these HS and college grads saved just $100 per month for their working years they would be millionaires when they retired, think of what they would have if they increased that monthly savings the same % that their salaries increased over the years. Today to much emphases is put on SS, it is an antiquated entitlement that needs to be changed to individual accounts that are run the same as a financial planners pension, same payroll deduction and put in the same type $100 per month account. But the liberals scare the people with oh no privatize it there wont be any money. What do these same people think is happing now with their SS funds. They call themselves “progressives” but they want to live in the past. People need to take responsibility of their own money and quit blaming others. Obama and Reid don’t spend your take home money you do save it wisely and spend it wiser.

  • Johnny

    thanks for the guide and i have taken most of those steps for the last year! i’m 24 make 3k every month(before tax) and i put away $100 on regular savings(automatically) and $550 (25%) of my income (after rent and utilities) into my Roth IRA (vanguard low expense ratio) and i couldn’t be happier! i paid all my debt and live a debt free life and i can’t wait to retire, most people my age have their priorities wrong and keep going deep with debt

    • Sherrie Ludwig

      You are on the way to real prosperity!

  • I have no problems at all with #1 through #6, but I get hung up on #7. I know we could reach financial independence faster if I were willing to take more risks with our money, but we could also end up taking a big loss and having to play catch-up. So I’d rather stick with a moderate-to-conservative mix of investments that lets me sleep at night. Slow but steady, that’s how I plan to win the retirement race.

  • Weston

    Cool! I don’t do any of that crap.