Here’s Why You’re Going to Retire Broke
If you’re like most people, you’re hoping to retire comfortably. However, you won’t be able to do this if you don’t make the right money moves now. Instead, you’ll be low on cash and have to either return to the workforce or stay a lot longer than you had anticipated. The Cheat Sheet chatted with Shirley Ann Robertson, a financial professional with Prudential Advisors, to get her take on why some people end up retiring broke. Her top advice: Don’t get too comfortable. Before you know it, you’ll be at the age to retire, so start preparing now. Here’s more from our conversation with Robertson.
The Cheat Sheet: Why do some people retire broke?
Shirley Ann Robertson: One reason some people retire broke is they believe one of the biggest retirement myths: Retirement is years away; I’ll start saving tomorrow! The reality is, tomorrow will be here in the blink of an eye, so you must start planning. You must start saving today!
CS: What factors contribute to someone being ill-prepared for retirement?
SR: Three big factors are:
- As your income increases, your lifestyle indulgences tend to increase. When your income increases, contribute more to retirement and savings instead of being financially indulgent (for example, buying a bigger home, another vehicle, or more vacations).
- Not maximizing your employer retirement plans. To receive your employer match, you must contribute. For example, 3% from your paycheck plus a 3% employer match (amount varies per employer) = 6%. Don’t miss out on your employer’s free money!
- Fear of the market. There are risks and rewards to investing in the market. Understanding your risk tolerance will help you make the appropriate investment choices. A financial professional will help navigate you in choosing the right investments to achieve your retirement goals.
CS: How can you make sure you save enough money for your golden years?
SR: Here are 3 steps to get started:
- Create a goal, a vision of what you want your retirement to look like and when you want to retire. Having a financial road map keeps you motivated, excited, and focused to achieve your goal.
- Manage your expenses today to enjoy your retirement tomorrow! We can easily fall into the trap of being financially indulgent. Review your monthly expenses and find ways to save (for example your cable, cell phone, utilities, eating out). Being prudent with your money now means you’ll have more to save for your retirement.
- Invest in the market for the long term! You’ve chosen funds that mirror your risk tolerance, now stay committed. Jumping in and out of the market negates the benefits of investing.
CS: What advice would you give someone who is just starting to save who is 40 or older?
SR: It’s never too late! You might be required to work longer but having a financially comfortable retirement is still possible! First, adjust/modify your day-to-day expenses; then move that savings into your retirement accounts. Next, contribute your pay increases to your retirement accounts!
CS: Anything to add?
SR: One big mistake to avoid: Funding your child’s college account instead of funding your retirement! There are no scholarships and no grants to help you fund your retirement. Helping your child pay for college is what most parents want to do. Contribute to your child’s college fund without neglecting to contribute your retirement account. Your child has years before their retirement—you don’t!