Planning for retirement can be challenging at the best of times. Make the wrong choices or decisions and you may be left wondering what happened to your dream of retiring. Here are 10 choices that can derail your retirement dreams. The first step is to figure out if you are guilty of any of them. The next step is to decide how many of them you can change, to get back on track.
1. Having Too Large A Mortgage
Owning your own home is a solid financial investment. Where the problem occurs is when you take too long to pay down that mortgage, which can easily happen when your payments are too large. Over thirty years the interest portion of your payments will run to more than the principal on the original loan.
On the other hand, if you can pay down the mortgage in just fifteen years, you will save more than half of that interest. At that point the money you were using for your mortgage payments can be put into an investment fund. The best plan is to buy a house that is affordable in the first place.
2. Spending Your Raise Or Bonus
It’s not living beyond your means that can be the problem. It’s living up to your means. Instead of spending everything you earn including raises and bonuses, take that extra cash and put it towards your retirement.
3. Car Payments
Sure it’s nice to own a brand new car, but you have to ask yourself if it’s really going to be worth it in the long run. Instead of financing a new vehicle, paying cash for a good used car can add thousands to your bottom line in your retirement years. Dealerships and financial institutions are more than happy to let you borrow money for as long as seven years. But did you know that a $28,000 new car loan on average costs $4000 in interest over the term of the loan?
4. Hands-on Budgeting
In theory, a budget is a wonderful thing. But unfortunately it doesn’t work for many. If you’re one of those who make a budget but then spend money that you’d planned to save when you run short, maybe you need to give hands-on budgeting a try. Another name for this is the envelope method and it’s a simple but effective way of sticking to a budget. Label each envelope with its own budget category and then add the amount of cash you need to cover that expense on a monthly basis. When the envelope is empty, you stop spending.
5. Credit Card Debt
Using plastic to make purchases makes buying too easy. Even with good intentions, it can be difficult to find the cash to pay the credit card off when the bill comes in. The interest on credit cards is very high, so the end result is that you end up paying a lot more for things you charge than you bargained for. Those interest payments could be money you save.
6. Overdoing the Rewards
Treating yourself to an occasional dinner out, ordering a pizza once in awhile, or vacationing for a week or two every year make life worth living. But don’t allow these rewards to get in the way of your retirement savings. If you find yourself complaining that you don’t have any money to save, maybe you need to take a look at your priorities. You do want to retire when you’re still young enough to enjoy it, don’t you?
7. Student Loan Debt
Today on average, college graduates come out of school with school related debt of around $35,000. That kind of debt can definitely impact your ability to invest in a retirement plan. If you have to wait just 10 years to start saving because you need to pay down your student debt, it could reduce the amount of money you ultimately have for your retirement by more than half.
8. Supporting Adult Children
As many as 60% of parents state that they continue to help their adult children financially after they have finished school. A quarter of those parents even went into debt to do so, while a smaller proportion delayed their retirement to provide financial support. Although this may be helpful in the short term, it may cause problems for both you and them in the years to come, if you have to rely on them for financial support.
9. Borrowing From Your 401(k)
This is possibly the worse decision you could make in terms of derailing your retirement. Not only are you taking out money that is earmarked for your golden years, you are losing out on the interest that your 401(k) could be earning for you. In a worse case scenario, if you should lose your job, you only have 60 days to pay off the outstanding balance.
10. Poor Investing Decisions
You work hard for your money so you certainly don’t want to take unnecessary chances with the money you are able to set aside for retirement. Making the wrong decision can cost you a lot of money. That’s why probably the best decisions you can make when it comes to investing are to work with qualified financial professionals and to be prepared to invest your money for the long term.
Making changes in the areas you’ve identified can make a huge difference in your ability to retire comfortably. Why not start now?