Are you ready for a secure retirement? This isn’t a question you can wait until tomorrow to answer — even if you’re still pretty young today.
Preparing for retirement is a lifelong project and, unfortunately, certain habits you develop in life can make saving enough for your senior years difficult or even impossible.
You don’t want to spend your golden years struggling, and you can’t live solely on Social Security benefits, so it’s important to develop good habits now that will allow you to enjoy life later.
It’s also important to put an end to bad habits that could leave you broke once you’ve left the workforce. In fact, here are three habits to end today if you don’t want to damage your retirement prospects permanently.
1. Not saving anything for retirement
Around 42% of adults are saving nothing for retirement at all, according to a report by the Center for Financial Services Innovation.
If you’re one of them, you probably have lots of justifications for why you’re not saving. You may feel your income is too low or you have too many expenses, or perhaps retirement is simply not on your radar due to current financial demands.
Unfortunately, these justifications won’t help you when you’re struggling to survive as a senior. So, you need to find a way to break the habit of spending everything you’ve got and start putting aside at least some money for retirement. Ideally, you should aim to save around 15% of your income or more, including an employer match. But, that’s completely unrealistic if you’re currently saving nothing — you’ll have to work up to that level.
If you’re not able to save anything right now, you may need to make some big changes. Consider asking for a raise or taking on a side gig and using every extra dollar to invest in a 401(k) or IRA.
You can also make a budget, look for ways to cut expenses, and set up for automatic contributions to a retirement account. By starting small with your savings, you can adjust your spending to your new reality — and then you can work up to saving more as you get used to living on less.
2. Living beyond your means
If you’re living well now, you may be making life much more difficult for yourself in the future. While there’s nothing wrong with an occasional splurge, regularly spending more than you make — or spending every dollar of your income — could leave you with nothing to support yourself as a senior.
Stop reaching for the credit cards to cover financial shortfalls or to splurge on fun purchases, and break this habit.
There are many things people tend to overspend on to live a life they can’t really afford. You may have a house that’s too big and expensive; a new car when you’d be better off with a used one; or a dining-out habit. Identify where your excesses are by tracking your spending and finding places to make some changes. You don’t want to end up going into retirement with debt hanging over your head.
If living beyond your means has left you deeply in consumer debt, it’s also important to get serious about a payoff plan ASAP.
Consider using the debt snowball or debt avalanche method to make extra payments toward either your debt with the lowest balance or your highest interest. The more extra money you put toward your outstanding debt and the sooner you can pay it off, the easier it will become to ensure your retirement won’t be in jeopardy.
3. Being afraid to invest in the stock market
Once you’ve got even a little bit of money saved for retirement, you need to start making that money work for you — which means investing in assets that produce a reasonable rate of return.
Historically, over time, investing in the stock market has been the best way to build a nest egg that can sustain you as a senior. If you put your money into a diversified mix of stocks, the returns on your investment can far exceed returns you’ll get from real estate, bonds, certificates of deposit, or savings accounts.
If you’re able to save just $5,500 annually and can invest that money to earn 8% annual returns over a 30-year period, you’ll end up with a nest egg of around $623,000 . But if you instead earned a 2% return, you’d only have about $223,000. That’s $400,000 less money you’d have to support yourself after leaving the workforce. You can’t afford to earn such low returns, so you really need to invest in the market.
The good news is that there are model portfolios you can use to invest in a diversified mix of ETFs that give you broad exposure to different asset classes. So, even if you don’t have a deep understanding of how to pick individual company stocks, you can still get your money into the market, where it can grow.
Break these habits today
Now is the time to break these dangerous habits and get serious about taking care of yourself in retirement. The sooner you start living within your means, saving for the future, and investing your savings, the better off you’ll be.
You owe it to yourself to make sure the things you do today don’t leave you broke as a senior, so start developing good habits now and put the bad ones behind you.
— Christy Bieber
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Source: Motley Fool