Planning for retirement, well the saving part anyways, seems to be one of those things far too many of us put off doing, or make a half-hearted attempt at setting a meaningful amount of money aside to be able to retire someday. Well financially independent at least.
Instead, we use “alternative facts”, or false narratives that we tell ourselves as to why we’re not saving enough, or nothing at all. It feels better that way. Until later in life of course, when reality sets in.
So here we go, let’s see if any of the statements below sound familiar to you—as in, they sound like what you’ve been telling yourself—and if so, then it might be time to look a little closer at what’s fact and what’s fiction. And more importantly how to get on track to being able to live a financially independent retirement someday.
Do any of these sound familiar to you?
“I have plenty of time to save for my retirement…”
More likely than not, the years have been ticking by as you’ve been repeating that to yourself. Maybe you’re saving something, but is it enough? A good rule of thumb is to simply start saving the bare minimum you feel you can afford, and then increase that amount by at least one percentage point a year, as well as upping it every time you get a raise or an unexpected windfall.
Another great strategy is to use what is commonly referred to as “the pay yourself first principle,” by automatically setting aside a portion of your paycheck before the money is deposited in your bank account where you can spend it. Versus depositing it all, then spending it all, and telling yourself “see I can’t afford to save right now for retirement.” But I will try again next week. And so on, and so on, until you wake up one day and realize your in your 50’s (or 60’s) and have little saved.
By waiting too long, you also lose out on one of the most powerful wealth building tools, the magic of compound interest where your money is constantly making more money for you, and over a long period, this can make a substantial difference in what you can accumulate for retirement.
“I can do it all myself, without help from a planner.”
Ask yourself this: Are you doing it yourself? Without a plan and benchmarks to acknowledge the goals you’ve reached, as well as ongoing financial coaching, many people simply drift into retirement with no solid plan. That’s dangerous because you’ll likely be unprepared for any financial shocks, any one of which could derail your retirement. Read our blog post about financial shocks.
“My money won’t have to last that long—I don’t have longevity in my family.”
This statement perhaps is true for people whose parents and other family members haven’t lived long lifespans, and for people who themselves are suffering chronic illnesses. But what many other folks fail to realize is how long average lifespans are these days. On average, a man who is 65 years old today will live until 84 and a woman who is 65 will live to 87. And keep in mind: those are averages. About one in four people who are 65 today will live beyond age 90, and one out of 10 will live past 95, according to the Social Security Administration. Have you considered what would happen if you were wrong? Then what?
Rather than assuming you’ll die young, consider talking with a Financial Planner about strategies that can help make your savings last for a long life.
“I’m going to take my Social Security benefits as soon as I can. Delaying benefits until a later age doesn’t make any sense.”
While people who expect to live a shorter-than-average lifespan might reasonably claim Social Security benefits as early as they are eligible at age 62, for many others they take it early because they can, and they feel they need to. But claiming your benefits early comes with a steep price. One that you pay for the rest of your life in the form of reduced benefits.
Claiming Social Security benefits at age 62 versus your Social Security “Normal Retirement Age”, may result in a reduction of benefits of up to 30%. That’s a lot to lose. Between the ages of 62 and 70, your benefits rise about 7% -8% for each year you defer taking them. By waiting until age 70 your monthly benefit would be approximately 60-70% higher than at age 62.
Why do so many people claim their benefits early then? Lack of knowledge seems to be a likely cause. Many people simply head to their local Social Security office the minute they are eligible, versus sitting down first with a Financial Planner specializing in Social Security claiming strategies. A Social Security planning specialist can help you navigate through the numerous claiming options available to help ensure you are maximizing your lifetime benefits while also meeting your current income needs.
“I can’t afford to retire.”
For plenty of people, the seeming impossibility of retirement leads them to a state of denial. Because they’ll never be able to retire, the thinking goes, they don’t need to think about planning for retirement. Don’t believe it. While some people do keep working through their 70s and 80s, that’s a rarity. Start thinking now about what your retirement might look like, and how you’re going to fund it. For starters, consider how you might cut out some expenses now, thus enabling you to save more and considerably brightening your retirement outlook.
“I don’t need to save. I’ll be getting an inheritance.”
This is a common excuse for people who avoid the idea of saving. Here’s the problem: That inheritance could easily dry up through your parents’ medical or long-term care costs, divorce, or other unforeseen major expenses. Plus, your parents or other relatives may live longer than they or anyone anticipated, meaning that they’ll potentially still be utilizing “your inheritance” for themselves when you’re ready to retire. Then what? Don’t bank on someone else’s demise to provide the funds you need for your retirement. That’s not a plan. Or at least a good one.
“I just need to get my kids through college then I can start saving for my retirement.”
Certainly, College costs loom large for parents. However, there are numerous potential sources of money to pay those costs, including financial aid, grants, scholarships and student loans. There is nothing wrong with wanting to help ensure your kids get a great education and head start in life, but the tradeoffs for you can be long lasting and irreparable. Student loans can be used to pay for some or all of their education, but there are no loans available to fund your retirement. And in the end, if your children end up having to help support you later in life, it’s arguable whether that investment made sense, for either of you. That’s why saving for retirement needs to be a top, if not at least an equal priority.
“I plan to work even after I retire.”
That sounds great in theory, but there are significant barriers to consider. One is the real potential for age discrimination, yes we all know its illegal, but it happens. If you’re middle-aged or older and you lose your job, it may take a while to find a new one—if you ever do—and during that time you may end up being forced to tap into your retirement savings. Another major barrier for people who plan to continue working: unexpected health problems. Of the 50% of people who retired earlier than planned, 60% said they did so because of an unexpected health problem or disability, according to a survey in 2015 by the Employee Benefit Research Institute. Now that’s something to think about.
“I’ll just use the equity in my home to fund my retirement.”
Home equity may be a source of retirement income, but there are serious caveats to consider. For example, if you plan to downsize to a smaller, less expensive home, that may be a great decision—if the local housing market supports it. Or, if you’re considering a reverse mortgage, you should understand the significant drawbacks. Reverse mortgages are expensive, and you’ll still be responsible for home maintenance costs and property taxes. Also, if you decide you want to move, the loan will need to be paid back. Plus, your children may end up being unable to keep the house after you die (to keep the house, they need to essentially buy it back from the bank by taking out a traditional mortgage and paying off the reverse mortgage).
“I will need far less income in retirement to maintain my same standard of living.”
For some retirees, this may be true. However, it’s a mistake to assume that this will be the case. In reality, many people spend more money in the early years of retirement than they did their last few years of working. Often because they finally have the time to do all the things they’ve always wanted to spend more time doing, like traveling, hobbies, or finally restoring that classic Mustang that’s been sitting in the garage for many years.
In reality, the amount people spend in retirement is highly variable. That’s why it’s so important to consider meeting with a financial adviser to draw up a specific spending plan. Doing so can help you truly have confidence in your finances—and enjoy retirement to the fullest.
In summary, while it may be easy to use “alternative facts” into fooling yourself into thinking you have valid reasons not to be saving what you should, in the end rather than living a retirement lifestyle of your choosing, you may end up living with one filled with constant worry and regret. We can’t change the past, but we can change our habits today that can help give us a far brighter tomorrow.
Sources: Social Security Administration. ssa.gov.
Eric C. Jansen, ChFC is the founder, president and chief investment officer of Westborough Massachusetts-based Finivi, which provides fee-based retirement income planning and investment management services for successful individuals and families nationwide. Do you need help planning for retirement? You can call (800)530-6635 for a complimentary consultation.
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