education degree. I recall her wondering if she was too old to go back to
school. My response: “Mom, God willing, some day you’ll be 50. And you’ll be 50
either with a college degree or without one. The choice is yours.” All I was
really doing was giving her back the same kind of advice she’s given me all my
life. At nearly 70, she just retired from a rewarding career teaching English as
a second language to middle school children.
We have grown adept at coming up with justifications for doing the things we
shouldn’t, and avoiding the things we should do. As the musician Carlos Santana
put it, “Most people don't have that willingness to break bad habits. They have
a lot of excuses and they talk like victims.”
So, with a hat tip to Santana (and my mom), here are seven common excuses
people make for failing to save for retirement:
1. Not enough money. The lack of
money is the easiest excuse to dispel. Retirement investing
doesn't require a lot of money. Most 401(k) retirement accounts allow for small
monthly contributions. There is no federally mandated minimum contribution.
Most employers allow workers to contribute as little as 1 percent of their
income to a 401(k) plan. IRA accounts allow for even smaller monthly
2. Paying off debt is more important. You don’t need to pay
off all non-mortgage debt before saving for retirement. Becoming debt free
before saving would mean delaying retirement savings for years, even decades.
Instead, lower the interest rates on debt as much as possible by taking
advantage of 0 percent balance
transfer credit cards and refinancing school and auto loans when
feasible. With lower rates on existing debt, you can continue to tackle debt
while also saving for retirement without paying excessive interest charges.
3. There's plenty of time. No there’s not. The longer you
wait to begin saving for retirement, the harder it will be to meet your goals.
Remember, the vast majority of a retirement nest egg doesn’t come from the
actual money saved for retirement. Rather, it comes from the interest,
dividends and capital gains earned from the money saved. For example, if you
save $10,000 a year for 40 years, the total money set aside is $400,000. But if
that money earns an 8 percent annual return, the retirement account will grow to
more than $4.8 million thanks to the magic of compounding.
However, compounding takes time. If you save $10,000 for just 30 years, the
balance will grow to $2.2 million, or less than half the 40-year balance.
4. Investing is too complicated. Investing can be
complicated, but it doesn’t have to be. With a 401(k) and a phone call to the
administrator of the plan, you can get help picking just a couple of mutual
funds that will offer ample diversification. With companies like Vanguard and
Fidelity, it’s easy to save for retirement with a single mutual fund. Lifetime
funds allow you to diversify into U.S. and international stocks and bonds with a
5. It's too late to make a difference. The later you start
saving for retirement, the less you will have in your golden years. But every
dollar still counts. You may have to make some sacrifices, perhaps by spending
less to save more and working past age
65 if possible. If you start saving at age 50, can continue
working for 20 years, save $1,000 a month and earn an 8 percent return, your
retirement savings will grow to more than $580,000.
6. Scared of the stock market. The volatility of the stock
market can be unnerving. However, there are several ways to address this
concern. First, invest in low cost index funds, rather than actively managed
funds. By doing so, you know that any losses are simply the result of general
market declines, rather than bad decisions by an active manager. Second, adjust
your asset allocation to include more bonds and other fixed-income funds. While
the long-term returns are generally lower than equities, the right mix can
reduce the volatility. And finally, recognize that you won’t need your
retirement nest egg for many years. As a result, short-term declines in the
market can and should be ignored.
7. No access to an employer retirement plan. Having access to a
401(k) or 403(b) retirement plan at work makes retirement
planning easier. Add to that an employer match of your contributions, and
you’ve found a great way to build your retirement savings. But if you’re not
fortunate enough to have a 401(k), you do have options. It’s extremely easy to
open an IRA account directly with mutual fund companies like Vanguard. You can
set up automatic contributions directly from a savings or checking account.
While there are plenty of excuses to delay
saving for retirement, there are even better reasons to start
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