Americans are living longer which is requiring more savings to maintain a comfortable standard of living in retirement. The median retirement savings amount for people age 55 to 64 is $107,000 according to the Government Accountability Office. This amount would only equate to $310/month in income if invested in an inflation protected annuity. Below is a list of detriments to retiring at an early age.
- Waiting to start saving for retirement – Due to compounding you can get more, by investing less. In other words, the person that invests from age 18 until 35, can often just let the money compound without adding fresh money, and still have more money at age 65, than somebody who invests hard from 45 until 65. The younger you can invest the better
- Not living below your means – spending more money than you make leads to lower levels of saved money at retirement. This can also lead to excess interest payments on credit cards that eat away at your accounts.
- Putting money in a savings account. Putting money into a bank account that earns 0% will never allow your money to grow fast enough to retire early.
- Not taking risks – indirectly leads to risks coming to you. So many people are petrified by any type of volatility. Look at stocks. 100% of people should have money in stock indexes, from those that can afford it. But only about 50%-60% have that, even in developed markets.
- Being emotional – people panic when they see their money drop and make mistakes such as not contributing to their company 401k plan.
- Missing out on free money – many workers in America live paycheck to paycheck and believe that they cannot afford to contribute to their company retirement plan. The majority of companies that offer a 401k plan also have a match. That match is free money to the employee and a 100% return on their money. Missing this benefit leaves people working longer than those that save appropriately.
- Market timing –nobody can time markets consistently for years. Not me, you, or anybody else. If you get one prediction right, you will probably get the next one wrong. This is linked to point 7 and being emotional. Many people get out of markets after getting fearful due to the media
- Listening to the news – the media is there to entertain and to attract clicks and views. Fear sells and that oftentimes gets more viewers and readers. Unfortunately following this as advice can lead to poor investment decisions.