The 11 biggest retirement lies we tell ourselves
December 24, 2012
This article comes from our partner LearnVest, a site dedicated to helping women take control of their personal finances.
Retirement is one of our biggest financial challenges for three reasons:
1. The sum we have to save for retirement is bigger than for any other financial goal.
2. When we prioritize our desires, retirement never wins on urgency, making it easy to keep putting off.
3. Saving for retirement is the financial equivalent of an ultramarathon. (Any of you run an ultramarathon, recently?) When saving to buy a house or to pay for your child’s college education, you might save for five or 15 years, but for retirement, you have to save decade over decade.
If just reading that list is making you sweat, we understand.
According to a nationwide survey conducted by LearnVest and Chase Blueprint, Americans’ number one financial worry is whether or not we’ll be able to save enough for retirement. About one-third of men and women cite that as their top concern over, for instance, paying down debt, having enough money to live comfortably and having enough to provide for their children.
As with any daunting challenges we face, we tend to think up excuses so we can avoid facing the difficult work of saving for retirement. Well, today is the day you’re going to stop.
We’ve compiled a list of the top retirement lies we tell ourselves, and we’ve come up with solutions that will get you on the path to a comfortable nest egg.
1. I can’t afford it
More than one in four women in the Chase/LearnVest study say they don’t have money to contribute to retirement after all the bills are paid.
Ahem. Yes, you can find $20 to get started. If you haven’t started saving for retirement, pack your lunch twice this week, and put $20 in a retirement account. (If you always pack a lunch, cut out another $20 expense this week.) Make this happen, even if you have to do it one dollar at a time over the course of the month. If you can’t think of any costs to cut, take our free 10-day Cut Your Costs bootcamp.
If your employer offers a retirement plan, set it up today and start putting at least 1 percent of your salary away. If you have an individual retirement account, log in and start contributing $20 more a month. If you were to contribute $20 a month for 30 years and your money grew on average 7percent a year, your total contributions of $7,200 would grow to more than $24,000. Want a step-by-step guide on setting up your employer-based and individual retirement accounts? This checklist was made for you.
2. I’m so young, there is plenty of time to save for retirement later
This is one of the most seductive retirement lies. For a good long while, it is true that retirement is a ways off. (Even if you’re 55, it’s still at least 10 years away.) Unsurprisingly, a quarter of women aged 25-32 in the Chase/LearnVest study said that retirement is so far off they have little interest in learning about it. Even 5percent of women aged 45-54 still feel that way.
But time moves along faster than you think: The study also showed that 6percent of women aged 45-54 had less than $5,000 saved for retirement. Those women are in a serious game of catch-up now.
Need more motivation to start today? Consider this: The longer you put off saving for retirement, the more difficult it will be for you to save.
Let’s say your goal is to save $1 million for retirement.
If you start saving for retirement when you’re 25, you’ll only have to contribute slightly less than $6,500 a year to reach that goal by the time you turn 65. Still, if you’re 25 and making $35,000 a year, $6,500 probably seems like a lot. Contributing that amount will leave you $28,500 a year to live on. Not ideal.
But if you wait until you’re 45 and making more money–let’s say, $60,000 a year–and start contributing then, you’ll have to contribute $28,185 a year to get to your retirement goal of $1 million! And that leaves you less than $32,000 a year to live on. But if you had started at 25, you would still be contributing just $6,500 a year at age 45, so you would have $53,500 a year to live on–not bad.
So, start now. (Learn more about why starting early makes it easier to save for retirement.)
3. When I get married someday I won’t have to worry about money
(We bet all the married women reading this are having a good chuckle right now.)
Whether marriage makes your financial life easier depends on a whole host of factors: Do you both work? Do you both make enough to support yourselves? Could one or both of you get laid off? Or get sick? Will one of you stay home? Will one or both of you switch careers? Will one or both of you receive an inheritance? Are you honest with each other about your spending? Do you agree on your financial goals? Will you have children? If so, will you pay for their college educations?
Want more proof that marriage won’t relieve your retirement worries? Here’s the age breakdown of women who reported they “would probably rely on my partner in order to save for retirement” in our Chase/LearnVest study: 23 percent of women aged 25-32 but only 12 percent of women age 45-54. It appears that as women get older, they become more realistic about retirement.
Bottom line: In marriage, your money worries change, but they won’t go away (in fact, money is a huge problem in this woman’s marriage), and your main money concern–retirement–will always be there whether you get married or not.
(If that still hasn’t convinced you, keep in mind that saving for retirement is harder for women, so it’s something we, married or single, need to focus on more than men.)
4. I’m counting on Social Security, so I don’t need to save that much
Maybe today’s retirees can say this. But the future of Social Security is so uncertain that anyone retiring in the coming years should not plan to rely on it. Why? The amount of money going into the program is not enough to give everyone the benefits they’ve been promised. Thankfully, the Chase/LearnVest study shows that seven in ten women are not confident that they will receive Social Security. But if you are one of the three in ten that believes you will, listen up:
If you’re 25 now, and you earn a hefty $115,000 a year now, you can expect to receive only about $3,231 a month in today’s dollars ($38,772 a year) if you retire in 2051 at age 70. Of course, this is the best-case scenario. If you’re 25 and earn $35,000 a year (much more likely), you can expect to only get $977 a month ($11,712 a year) if you retire at 62. That’s poverty-level income.
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