How do you see yourself 20 or 30 years from now? Do you think you’d be sipping cocktails on the beach by the time you are in your 60s, enjoying the fruits of decades of hard work, and living out your retirement dreams?
Many of us would love to be in that position, but not everyone is preparing well enough for it. Retirement planning is simply not popular for many people, especially those who are two to three decades away from retiring. This is unfortunate, as planning for retirement is one of the most critical financial goals a person will undertake.
In the United States, a retirement crisis is already underway. Consider these statistics:
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- The average age of retirement in the US is 63 years old.
- On average, for most Americans, retirement can last for 18 years.
- Nearly 50% of Americans who are nearing the retirement age of 65 years old have saved less than $25,000.
- Worse, 1 in 4 Americans nearing retirement has savings of less than $1,000.
In short, many retirees don’t have the resources to maintain a decent standard of living, or to live comfortably in their golden years.
You can start setting up yourself for financial stability in your 60s and retirement by avoiding these common mistakes now:
1. Not Saving at All
This is arguably the biggest mistake that people commit. Young people, in particular, are too preoccupied with less important things like planning for a vacation than saving and setting up their retirement funds.
Take a look at these surprising stats from a survey conducted recently by online marketplace LendEDU:
- 37% of the surveyed people aged between 22 and 37 years old don’t save for retirement
- 49% of those surveyed spend more on dining out than saving for their retirement
- 27% of the surveyed individuals spend more on coffee than on saving
The usual excuse young people give is that retirement is too far for them to plan ahead. People in their 20s think that since they are 40 years away from retirement, they can splurge and start saving when they reach their 30s.
By the time they hit their 30s, they already have families, so they need to buy a house and car aside from supporting their babies or kids. Therefore, they defer saving until they reach their 40s.
But when they are their 40s, these people have to spend on their kids’ education or help their aging parents. They don’t start saving until in their 50s, limiting their savings potential in the process.
Saving should not be looked at as a difficult job. Even if you save $100 a month, by the time you hit your 30s, you will already have around $36,000 for your retirement. If you started saving early and put away $200 a month, you should save nearly $156000 by the time you reach 65.
2. Relying on Pension Plans
People who don’t save enough also offer another reason or excuse\—they have a company pension plan that can take care of their financial needs by the time they retire.
It’s something they’ve seen work for their parents and grandparents. After all, pension plans, especially for those who work in the government, have enabled retirees to live as comfortably as when they were working.
However, state pension funds are already finding it hard to cover the benefits of their members. Consider these facts:
- The state of Illinois has a pension liability nearing $200 billion, but it only has $80 billion to cover these costs
- New Jersey has more than $200 billion in pension liabilities and just $81 billion on hand
The same can be said for company pension plans. These funds are losing money due to a combination of factors like poor investment choices and increasing benefits of members.
The key takeaway is this—the days of the state and employers providing sure income for life will soon come to an end. You should not place all your hopes in your firm or state’s pension plan. Start saving and investing now so that you can have something to lean on in your retirement years.
3. Mismanaging Debt
What’s worse than having no retirement plan? Limping into retirement with too much debt is. Surveys have shown from a valuable loan provider like nation 21 loans that more and more people are mismanaging debt and loans that they have to delay retirement.
According to a study conducted by the American Economic Association Papers and Proceedings:
- More than 7 out of 10 people aged 56 to 61 years old are in debt
- The median debt balance of those in debt is $32,700
The study concluded that more Americans today hold more debt as they near retirement and thus face greater financial difficulties compared to previous generations.
Being in debt can cause serious repercussions. For one, people who are nearing the retirement age may be forced to work longer so they can pay off their obligations. They will also have to cope with rising interest rates. Being in debt can also affect their ability to deal with healthcare costs.
Mismanaging credit card and other debt can be attributed to different factors. Some fall into the debt trap because they fail to set and follow a budget. Others simply have become too reliant on their credit cards.
In short, you should avoid these three mistakes people usually make before they reach their 60s. Doing so will not only spare you from a lot of headaches but set you up for a fruitful and enjoyable retirement.