Retirement is the culmination of decades of financial decisions, and the unfortunate truth is that some of those decisions aren’t always good. This is exceedingly common, in fact. At present, millions of Americans are making financial choices that will hurt them down the road. According to a GOBankingRates survey, an alarming 64% of Americans will retire broke.
To gain a better understanding of the financial decisions that can tarnish one’s golden years, GOBankingRates interviewed real retirees. Although they’re largely content, they all had at least one nagging money regret they still think about.
Create a Comprehensive Financial Plan
Drew Parker went on to create The Complete Retirement Planner when he retired, but he wished he had paid more attention to retirement planning much earlier.
“When I was younger, I wish that I had known the full value of having a comprehensive financial plan,” he said. “I didn’t create one until I was actually ready to retire, but I wish I had created one decades before. To my younger self, I would say, ‘Create a financial plan as early in your career as possible so that you won’t have to guess and hope about what it will take to become financially secure.'”
What You Can Do
Create a financial plan — either with an advisor or on your own — that outlines your retirement needs and wants, and how to get there. Your retirement planning should take into account your values and goals, your risk tolerance, your goal retirement age and the lifestyle you want. Once you’ve established how you want your retirement to look, calculate how much to save for retirement and how long it will take you to save that much based on the amount of income you expect from your investments, retirement savings, Social Security benefits and other income streams. You can always readjust your plans as needed.
One way to get started right now with your financial planning is to open a high-dividend account. By choosing this type of account, your money will be safely put away but still working for you and available when needed.
Take Advantage Of a 401(k)
“Back when we lived paycheck to paycheck with four kids at home, I wish we had put as little as $20 per pay period into a 401(k) or 403(b) (for educators),” said Pam Davis, a former speech pathologist at schools in the Omaha school system. “We thought we needed hundreds each month to save for retirement, and since that wasn’t an option, we had years where we put nothing into our accounts.” Once the couple became empty nesters, they tried to make up for lost time but it proved more difficult than they anticipated. They never reached their goal.
Fortunately, Davis worked in a field that offered a pension. “I had no choice but to give a set amount to the retirement account and my employer matched it at 101%. At the time, I didn’t even think about it, but now realize how wonderful that was. In fact, with little money in the 401(k) and 403(b) accounts, it is our lifesaver,” she said.
What You Can Do
You don’t have to live below your means to take advantage of an employer-sponsored retirement program. You decide how much you’re willing to contribute per paycheck. Start small if you need to, and as your salary increases, increase your contributions accordingly.
It’s especially important to capitalize on employer matching. Let’s say you make $30,000 annually or $2,500 a month. If you contribute 5% of your paycheck to your 401(k), that is equivalent to $125 per month. Now, if your employer matches up to 5%, you’ll have $250 contributed per month instead. You’ve just gone from tucking away $1,500 a year in your retirement fund to $3,000. That’s a big difference.
Don’t Focus Too Much on Making Money
Former college professor, researcher and social worker Kathleen Fox wishes she had focused less on money over the years.
“I worked very hard for most of my life and put aside just enough to live on (pension and Social Security) when my husband and I retired,” said the mother of three. “The one regret I have is that I did not take more time off to spend with my children. It all went so fast, and I regret every day that I was off working, usually in a job I did not really like, while they were learning and growing — days you can never get back.”
What You Can Do
Undoubtedly, one of the best parts of retirement is the time you get to spend with family. However, if you spend too much time looking toward the future, you might forget the importance of the present.
To ensure you don’t waste valuable time with loved ones, try one of these tips:
- Institute a family night during which you play games, watch movies or simply recap your days over dinner.
- Take regular vacations. There are plenty of ways to have an affordable vacation, including staying in a local hotel and exploring your own city.
- Request a flexible work schedule or shift your schedule so that your hours align with your child’s.
- Take advantage of any employer-provided family time. Some companies allow you to take a certain amount of time off for children — so don’t miss that dance recital or soccer game if you can help it.
Don’t Waste Your Money on Depreciating Assets
“During my 20s, I was single and had reasonably well-paid management jobs in the food service industry, but I also had a history of putting a fair amount of my discretionary funds into depreciating assets like several used European sports cars,” said Timothy Wiedman, who worked as an associate professor of management and human resources at Doane University before his early retirement at age 62.
“As used cars, they all developed mechanical problems at one time or another that usually seemed to require expensive imported parts and/or specialized tools to repair. I also took multiple week-long ski trips to resorts in Colorado, Quebec and New England, and one summer, I decided to buy a small sailboat. I justified this poor money management by telling myself that I could always ‘catch up’ later on my long-term financial plans after establishing a more solid career and seeing my income increase.”
Wiedman said that missing out on compounding interest by spending rather than saving made his poor spending decisions an even more bitter pill to swallow.
“Back then, I was only vaguely aware that the earning power of compound interest was based on time, so my initial delay in saving for the future could have severe consequences,” he said. “Thus, while opening an IRA as early as possible was vital, I didn’t do so until I was nearly 32 years old.”
What You Can Do
If you cut out buying some depreciating assets, you’ll have extra funds that can be used to open a high-dividend savings account that will keep your money growing.
Another option is to invest in a retirement account, like a Roth IRA, as soon as possible.
“If a 23-year-old fresh out of college put $3,000 per year into a Roth IRA that earns a 7.8% average annual return, 44 years later at full retirement age, that $132,000 of invested funds will have grown to $1,009,275,” said Wiedman.
“On the other hand, starting the same Roth IRA 22 years later will yield quite different results. Putting $6,000 per year — the current maximum for folks under age 50 — into that Roth IRA for 22 years still equals a total investment of $132,000, but at full retirement age, still earning the same 7.8% average annual return, those funds will have only grown to $324,562. The delayed start will have cost our investor more than $684,000.”
Learn How To Make Money Doing What You Love
Robert Sullivan, a retired senior financial analyst, said he would tell his younger self to “follow your dream with your career but seek expert advice so you have a solid foundation on which you can base your abilities and can learn how to make a living doing what you love.”
In doing so, you might even be able to carry your passion into retirement while still making money through it.
What You Can Do
Ideally, we would all have full-time jobs that we love, but even if you’re not passionate about your 9-to-5, there are still ways to monetize the things you truly care about. Consider taking on a side gig that takes advantage of something you enjoy doing. This can be anything from photographing events on the weekend to selling crafts on Etsy or walking dogs in your spare time. Not only will this allow you to do more of what you love, but you’ll also be making the extra income you can put toward your retirement.
A Little Goes a Long Way
Whether you are just entering the workforce or are far along the path to retirement, these retirees’ valuable insights shouldn’t be overlooked. Many of them underscore the importance of financial literacy. If more people were educated on topics such as investing, compound interest and employee benefits, nearly half of the population might not be looking at impoverished retirement.
Take a moment to evaluate where you stand financially and be honest with yourself. Knowing where you are relative to where you need to be can make all the difference in the long run. Hard numbers can be scary, but they can also spark action that will completely transform your future.