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Some Advice on Saving Money for Retirement

Some Advice on Saving Money for Retirement

Only a small portion of people are comfortable with their retirement plan.  And the vast majority of people worry that they will not be able to save enough money for their retirement.  That’s why it’s in everyone’s best interests to learn how to prepare for retirement.  In this article, we are going to bring to discuss two things that can help you save for retirement.  First, how frugality matters.   And second, how to avoid common mistakes about retirement investing.

Frugality Matters When it Comes to Saving for Retirement

Indeed, frugality matters.  Being more frugal now means that you will save more for retirement.  It also means that because you are a more frugal family, that you will need to spend less during retirement and so you won’t need to save as much for your nest egg.  In other words, being frugal with your money has a doubling effect on saving for retirement.  It speeds up How to Save for Retirementyour savings rate and it decreases the amount of money you need to save.  This means that you have a better chance of either reaching your retirement goals or even reaching them earlier.

The best way to see how frugality works is to see the effect that such matters have on your retirement.  Read how this usnews.com article describes saving for retirement:

When you are retired, your income will be fixed. You will have minimal earned income and your savings and pension will pay the bills. Let’s see how much savings you need to spend $100 per month to pay the cable bill throughout retirement. If we use the 4 percent withdrawal rate, you will need more than $30,000 in investments so you can draw $100 per month. If that money is stashed in a retirement account, you will also have to pay tax on that passive income. So, $30,000 might not even be enough to cover the cable bill throughout retirement, especially if prices go up.

Do you have $30,000 saved up to pay for your future cable TV? What about other bills? A $5 weekday latte habit will cost another $100 per month. With just 2 bills, you already need a $60,000 nest egg. Check your monthly costs and you will see many more recurring expenses. You will need to build up your nest egg to pay for gasoline, a cell phone plan, pet food, eating out, car repairs, movies, new clothes, and much more….

Read more at Frugal Habits to Improve Your Retirement.

Isn’t this enlightening.  It basically says that for every $100 per month spent during retirement, you’ll need to save an additional $30,000!  And just think how long it takes to save $30,000!  Every $100 you knock off your monthly spending can bring you so much closer to reaching your goals.  This brings us to our second bit of advice – how to avoid retirement investing mistakes.

Avoid Retirement Saving Mistakes

There are lots of things that deter people from saving for retirement.  Whether it’s emergencies that arise or just putting off the saving process until its too late, making mistakes can really set you back from reaching your retirement goals.  This usnews.com article talks about six money mistakes that many people make when planning for retirement:

My kids’ tuition comes first Uh-uh. Your kids can borrow to go to college. No, it’s not perfect. But they have a lifetime to pay it back, and you can help later on if you are well situated. It’s more important to start saving now for your retirement security. The extra years of compound growth can be a game saver.

Planning retirement is impossible It takes a little effort, yes. But calculating your needs is doable. Determine your likely assets at retirement. Then figure out how much income they will produce including a 4% (plus inflation) annual drawdown of your account balances. Set that against your expected expenses. Start with this easy calculator.

I need to pay off my debts first This might be the right strategy if your debts are on high-interest credit cards and you can pay them off in a few months and then keep them in check. But most people don’t have that kind of discipline. A better strategy is to tackle both your debts and your retirement savings at the same time. That way you’ll be getting an early start on your long-term savings goal and allowing time for compound returns to work. Besides, you’ll probably be working at least part-time in retirement and will have the ability to service some debt.

It’s too early to start saving You know that’s not the case. Say you start saving $150 a month at age 20 and your same-age friend puts off saving to age 30, at which time she starts saving $200 a month. By the time you are both 60 you’ll have invested identical dollar amounts: $72,000. But you will have $372,827; your friend will have just $235,213 (assuming average annual returns of 7%). That difference of 58% is entirely due to your earlier start.

It’s too late to start saving That’s never the case. If you are getting a late start you’ll have more trouble reaching your goals. But past the age of 50 you can take advantage of an additional $5,500 a year of “catch-up” savings in a tax-favored account. And by working a little longer and delaying Social Security benefits you may still fashion a suitable retirement income plan….

This was originally presented in the article 6 Myths About Saving for Retirement.

These are some great points about retirement planning, and I’ve heard many people use these excuses.  In my opinion, the biggest problem that deters people from saving for retirement is making excuses like these.  Besides making excuses, many people use justification methods to fool themselves into making bad decisions.

For example, most people know that they should be saving a substantial portion of their income each month, but fail to do so.  The most common justification is “I’ll do it next month”.  However, next month, they say the same thing and soon it is years later and nothing is saved.  Most people have a very difficult time putting off spending until they can afford it.  This is the reason credit card debt is so high for average families.

The takeaway is that to wisely save for retirement, you must be aware of the impact that frugality and making money mistakes can have on your success.  By knowing these things, you can avoid making the same mistakes that the majority of Americans make every year.

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