According to a US Federal Reserve survey, about a third of American citizens who own their own homes do not have a retirement account for when they can’t or won’t be employed any longer. Nor do about two fifths of all Americans in their 40s, 50s and 60s. So, how do these people mess up a disciplined saving for their own security in retirement years?
1. Focused on Spending & Keeping Cash, but not Investing
The biggest trap is building your lifestyle on what you earn, sometimes more than you earn. If you were to knock off anything from US$2,400-6,000 from your annual salary, you could still build a sensible lifestyle as well as contribute to your second, future income. Don’t say to yourself, “I’m not even going to try”. Like exercise, start a habit, start small and/or get a coach to guide you. Simple, yet easy to ignore.
2. Figuring No Need to Save until Later
This is a “fools gold” idea. You will need a certain size of asset on which to lean in later life. Not the house; this is your shelter and will not cover expenses. The alternative asset will require you to inject your money, like a second mortgage. The more years available, the less “cost” over those years because the money has time to yield, like a crop. If someone had to save US$200 per month at age 25 the total “investment injection” would be US$96,000 over 40 years. If left for 15 years, the amount now required is likely to be US$1600 per month or US$480,000 over 25 years. Don’t fall into this trap by not being aware of the math.
3. Underestimating Your Needs
Full social security may typically replace only about 30 percent of your preretirement income. The rest you have to come up with yourself. And your retirement may be a long one. Nearly a third of those who make it to age 65 can expect to live into their 90s, according to federal data. This problem is not going away; its only getting more expensive by leaving it unprepared.
4. Not Automating Your Savings by Direct Debit or Autopay
If you pre allocate the money and don’t see it, you’re not going to waste it on non-essential incidentals. It’s already easy for you to spend ¥100 a day without thinking about it. Why is it not easy for you to save ¥100 a day by a disciplined decision? It’s harder to take it away after you have spent it.
5. More Important Things Today
There are other “more important things” you want to do; holidays, experiences, save for a house, pay off your mortgage early, flash your cash, the list is endless. Sorting out a retirement plan may seem, in President Eisenhower’s words, “important but not urgent”. But it’s both! Someone who starts at age 25 instead of 30, investing the same amount, can easily end up with a third more money in their account by age 65. Carpe Diem. There is never a good time; the best time is now.
6. Chasing Hot Investments
Do it yourself, beginner investors also seem to be more taken in by quick-return, risky and fad-type investments. They get a little bit of money together, and whatever investment is hot right now seems like the smart place to put your money after chats with friends; a “lemming” principle. It generally ends in tears. And often, sadly, it ends in a double loss. You may have had food poisoning once, right? But you still eat.
7. Chasing the Market
Typically, starter investors get more enthusiastic about investing in stocks only after seeing them rise. Then they panic and sell after the stocks fall. Buying high and then selling low is a guaranteed way to do worse than the market over time.
8. Saving in Cash in Lieu of Investing in Stocks; It Feels “Safer”
Allocating money you don’t need or want to touch will grow more over the years. Also, you if think its extra security to pay off your mortgage early, you are not only sacrificing the cheapest form of debt that should be easily manageable, but you are severely reducing the remaining years available and therefore making your own costs much, much higher. Is it really such a smart idea once a light has been shone on this?
9. Not Having any Kind of Plan
As the old saying goes, failing to plan (by design) is planning to fail (by default). You wouldn’t set out on a road trip without a map or destination! Is that the most sensible way to plan a journey?
You only need to ask “how to” in order to get the ball rolling constructively rather than accidentally joining the “how not to” club and regretting it really only when it’s too late.
