I understand that everyone wants to retire by the age of 35. But realistically, for many (or most) people, that is not an option. If you start working at the age of 25 and work for ten years, and then expect to have saved enough to never work again for the next 65 years, you better be making lots of money and saving every penny. You also better have side income sources (rental properties, businesses, dividend stocks) or sell a company to have adequate cash flow to cover your needs for many years to come. I’m not saying it can’t be done, just know that it will require a focused effort to reach that level at such an early age.
For those that have the resources, creativity, and drive to make early retirement a reality, go for it. For the rest of the world, we may need to work a little (or quite a bit) longer to reach our goals. But that’s not all together bad. Just because you still need a job, doesn’t mean the job has to make you miserable. If you’re willing to look, there are options that provide flexibility, a sense of accomplishment, and generate a good income.
Either way, as you work toward your personal retirement goals – no matter what age, there are some retirement pitfalls that can slow you down and maybe even derail all those great plans.
Common Retirement Pitfalls
Here are some of the most common retirement pitfalls you may encounter:
- Kids. I hate to say it this way, but one of the biggest pitfalls that can impact your ability to retire at 35 or even 45 is having children. I am not saying don’t have children. My kids are my life and I wouldn’t change that for anything. But children can be expensive. And the money you are putting towards your children is money that you will not have for retirement. I have been willing to push out my retirement goals for the sake of providing for my children. This is a personal choice, but one that should be considered.
- Adult Children. In addition to the costs to raise children, you can also find yourself continuing to spend money on your kids long after they have grown. With the average college student graduating with over $35,000 in student loan debt and meager job prospects, it’s not uncommon for parents to find themselves providing for their children long after they thought they would.
- Aging Parents. Along the same line, depending on your parents financial situation, you may find yourself funding a portion of their retirement. Significant medical expenses can be especially significant for some if your parents are under-insured. If your parents are going to require financial assistance, start discussing and begin preparing early for how you will handle this.
- Failing to Reconcile Differing Views From Your Significant Other. It’s not necessary that both parties have the same view on spending, saving, investing, and retirement; but, it is necessary for those differing views to be reconciled. If one partner likes to spend, there needs to be a mechanism for controlling that spend. This really comes down to communication. And the more each party communicates with the other and shares their perspective, the better chance the pair have to find good solutions.
- Too Much House. For most people, their house is the largest single expenditure they will make in their lifetime. But if you’re not careful, that expenditure and all the expenses that go along with it can keep you from meeting your retirement goals. The bigger and more expensive the house, the greater the expenses above and beyond the mortgage. Items such as taxes, insurance, utilities, and maintenance can all add up. But with a bigger house often comes the social pressure to spend more on other items like cars, club memberships, private schools, and trips. Don’t be house poor.
- Expensive Cars. Other than their house, for many people, their car is the next largest expense item. For many, it has become almost expected that they will buy at least one car per driver. And many times, you’ll see families continuing to trade in their used car for a new one every three or four years, thereby always having a car payment. This in turn leads people to decide, why not lease since I already have a car payment? It’s a vicious cycle and spending that much money on a car that sits idle for 95% of the time will dramatically impact your progress to retirement. If you want a good rule of thumb, see the article written by Financial Samurai about not spending more than 10% of your gross income on a car. To clarify for those inclined to buy expensive cars, that’s the total value of the car not exceeding 10% of your gross income.
- Extravagant Travel. There are ways to travel inexpensively and there are ways not to. If you are willing to put in the work and have some flexibility, you can sometimes get pretty good deals. It often depends on the time of year you travel and where you go. This is another area that can be significantly impacted with children. If you have no kids, you can travel when you want (within the confines of your job). But with children, you’ll usually have to travel when they are out of school which coincidentally coincides with the busy season for many popular vacation spots.
- Big-Ticket Items. We have already covered some of the main big-ticket items above, but others can creep up and derail your retirement plans. Items such as large pieces of furniture, entertainment centers, even room additions and home renovations are all potentially expensive items. As you contemplate one of these items, think about how much it is really going to cost you. Not just now, but in the future. And ask yourself, how much value will I get from this purchase?
- Poor Spending Habits. This is a general statement, but have you ever noticed that some people are just naturally frugal. They cut coupons and bargain shop for the best deals on everything. They truly do not like to spend money and will do whatever they can to minimize their spending. If you can develop this mentality, it will serve you well getting to retirement.
- Credit Card Debt. I left this for last because if you don’t remember anything else from this article, remember this. Credit card debt is the greatest of all retirement pitfalls. While you are carrying credit card debt or any other high interest consumer loan debt, you will never reach retirement. If you have any credit card debt, stop spending, stop investing and pay it off as soon as you can. This is the best return you can get on your money without a doubt. Hopefully, that was clear enough.
As you look out for these retirement pitfalls, don’t just ask yourself how much they cost today, but how much they will cost you in the future. Based on your income level, you might be able to afford many of these items. But that may mean putting off retirement for years and years. Is it really worth spending $30,000 to put in a home theater when that same money invested at 6% over 20 years will grow to nearly $100,000!
What other retirement pitfalls do you run into? How do you resist the temptation to spend today?