Spare yourself these retirement savings excuses

A smiling old man.

Retirement savings is something you should be able to smile about. (Photo Credit: CC BY/Alex Proimos/Flickr)

If you think that saving for retirement is a boring chore that has little to do with your young life, reconsider before it’s too late. It’s always a good time for sound financial planning and investment in your future. Be wary of the following excuses for not saving for retirement.

Postponing retirement savings excuse No. 1 – Not earning enough

Nearly everyone believes that they don’t make enough money to stock some away for retirement. All of those people are wrong. Setting aside a small amount each paycheck adds up over time, even if the amount is very small. As income increases, so can the amount you save. Assuming that you put the money into a 401(k) or IRA account with compounding interest, you’ll accumulate quite a bit over a 40-year career. If the money is in a Roth IRA, there will be no income tax applied to the money.

Postponing retirement savings excuse No. 2 – High debt and expenses

Once again, many people have large amounts of debt and high expenses with which they must contend. It just means that in order to save for retirement, a tougher budget is required. Track spending with free tools like Mint.com, review monthly expenses and see was can be cut down. If you can refinance loans at a lower rate, that should prove helpful. Any surplus money that comes from cuts should be saved for retirement.

Postponing retirement savings excuse No. 3 – Not understanding investing

It doesn’t take that much time or effort to understand the basics of investing for retirement. Many free online tools like Mint exist that can help you determine your personal investing style, from ultra-conservative to speculating with liberal abandon. If you still aren’t sure, however, you can always hire a financial planner to guide you in the process.

Postponing retirement savings excuse No. 4 – College tuition

Saving for higher education is a noble goal, but it needn’t supersede retirement savings completely. Students should pursue grants and scholarship at every opportunity during their high school years, if not earlier. By high school, students can also benefit from their own work income. If these sources aren’t enough, then student loans are an option that should be exercised with caution, whether the loans are federally subsidized or offered by a private organization. Many financial experts agree that retirement savings should come before any of these things, while college savings should come second.

Postponing retirement savings excuse No. 5 – Working part-time

If you think you won’t need to spend much money during your retirement, think again. Studies indicate that most retirees need as much as 80 percent of their normal salary during their days of repose. Many financial planners suggest that retirement income should even match what one was making at work. In that scenario, retirement planning becomes even more significant. Simply cutting back on expenses and working part-time won’t cut it, as the U.S. job market for over 50s is still in the doldrums, according to a recent Rutgers University study.

Postponing retirement savings excuse No. 6 – Social Security

A 2010 report from the Social Security and Medicare Boards of Trustees suggests that Social Security funds may dry up by 2036. Best-case scenario for young U.S. workers is that they’ll receive 75 percent of scheduled benefits. As the average monthly benefit is currently $1,172, that’s far from enough to live on. Savings will be essential.

Postponing retirement savings excuse No. 7 – I’m too old

If you’re over 50 years old right now, there are still plenty of retirement savings options on the table. Currently laws even give you the ability to catch up on contributions to a traditional or Roth IRA with up to an extra $1,000, maxing out at $6,500. There aren’t as many tax breaks as there are when you start saving early, however. Consult with a tax accountant or similar financial expert to determine what is best for your specific situation.

Postponing retirement savings excuse No. 8 – There will always be time

If you’re in your 20s and believe that time is your plaything, grow up. Decades later, you’ll wish you had socked away money in a tax-favorable, medium-return retirement account. If you can find a favorable mix of stocks and begin investing early, even a $20,000 salary with a 3 percent annual raise – and 5 percent regularly contributed toward retirement – the results with interest can be stunning once you reach age 65.

Sources

Bankrate
Investopedia
Mint Life

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