10 Reasons People Retire Poor


There are a lot of things that you can do that will negatively affect your retirement fund with most of them having to do with not beginning early enough or putting money toward other things instead of retirement. Here are 10 moves that may leave you poor when it comes to retirement:

Setting money aside for college ahead of retirement

While most parents want to help their kids when it comes to paying for college, it’s important to remember that your children can get loans for college but you can’t get loans for your retirement. If you plan early, you should be able to contribute to both, but if the choice is one or the other, in most cases you are better off funding your retirement first.

Believing it’s OK to wait

Retirement usually seems so far away that many people believe it’s okay to wait a few more years before they begin to save for retirement. The fact is that the sooner you begin, the easier it will be to accumulate your needed retirement funds and you won’t be scrambling in your later years to come up with money for your retirement.

Not taking advantage of 401(k) matches

If your company offers a 401(k) plan that matches a certain amount of your contribution, not taking advantage of this is the same as throwing away free money. You should contribute to your 401(k) up to the match at the minimum from day one if at all possible making it a priority within your budget.

Accumulating credit card debt

Accumulating credit card debt and paying the interest to the credit card company instead of placing the same amount into your retirement fund will make your retirement fund much more anemic than it really should be.

Counting on an inheritance

Counting on other people’s money for your retirement is something that you should never do. A lot of things can happen and there is no guarantee that the money will ever get to you. If you do receive an inheritance or a lump sum of money, be thankful and use it wisely, but don’t expect it has your retirement fund or you may be left in retirement with nothing.

Buying more house than you can afford

Buying more house than you can afford will leave your retirement fund with less money and with a major liquidity problem to solve. Your main residence is not a good retirement investment While there are tax advantages for the mortgage of your house, retirement funds offer better tax advantages if you have a choice between the two.

Neglecting insurance

While nobody hopes for the worst, it does happen from time to time and that is what insurance is for. Not keeping the proper insurance can mean that a lifetime of retirement savings is wiped out in a single moment. It’s important that all of your insurance is up-to-date and at the proper levels

Failing to take advantage of IRAs

Failing to take advantage of IRA contributions, especially in the early years, can greatly hurt your retirement fund. Since IRAs have great tax advantages, you want to make sure that you contribute the full amount beginning at as early an age as possible. This is especially true since there is a limited amount that you can’t contribute each year to them.

Investing too conservatively

Part of the reason that you want to invest early is to take advantage of compounding interest. If you place your retirement money in investment instruments that are too conservative, the compounding will be greatly deflated. You also need to remember that inflation will take away part of the savings that you have placed in your retirement fund, so you need to make sure that you invest in a way that you significantly outpace inflation.

Investing too aggressively

On the other side of the coin, you don’t want to invest your money in high risk ventures that there is a good chance that your retirement fund will be wiped out. Your retirement fund should be aggressive, but not high risk as this is the money that you will need in your later years in life.

(Photo courtesy of Roberto.Jorge)

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6 Responses to 10 Reasons People Retire Poor

  1. ongrowthtrack says:

    Setting money for college aside a lot of times happens to be an emotional decision. However its true that education can be financed in various ways, with so many colleges and financial plans. Involving a kid in this kind of a decision will be a good learning for him / her.

  2. Tell says:

    I liked your article, but think you left out an important tip I got early on.

    The tip is: don’t buy more car than you need!

    If you buy a house, the inflation gods may smile upon you and bail you out. But a car is a depreciating asset no matter what the economy is doing. True, most of the things we buy depreciate, but few items depreciate as spectacularly as a car.

  3. Bill says:

    Like many other people giving advice on retirement, you suggest that it is foolish to save for your child’s college before your own retirment is secure.

    I think this analysis assumes a parent has no obligation to try to send his kids to college with his or her own money, rather than relying on the rest of us to fund their education through grants or government guaranteed loans. I disagree with this premise.

    I think responsible parents who are able should pay for college on their own dime, not at the expense of taxpayers, and not at the expense of their own children, who will be saddled with substantial debt early in their careers, when it is most difficult to repay.

    If your premise is correct, shouldn’t you also advise people to feed their children cheap food, dress them in clothes from the Goodwill store, and limit their Christmas presents, putting the savings in the parents’ retirement accounts?

    To me, your advice is to be selfish and to shirk one’s duty as a parent. Any balanced analysis of this issue should at least mention this side of the problem.

  4. Bill says:

    Unlike the other Bill (post4) I thought your article was well said.

    You ommited a couple of very important reasons people fail in retirement though.

    “Mother Nature” and our legal system here in the US are two of the biggest reasons retirement plans of many thousands of people will fail.

    Each year “Mother Nature” steals places of employment so there is no more work and often they will not rebuild.

    Our legal system has seen fit (American Airlines)to allow large coporations to do away with the company sponsored retirement plans or to modify them to such an extent that employees can no longer participate.

    Ofen these situations arise for some strange reasons in our senior years with many years invested in the company.

    It is darn hard to get further employment when your in your fifties, grey hair, and a pot belly. You are now a liability to an employer as the cost of insurance will be higher than that of a thirty something employee.

    My two cents.. and the reason I tell people to build an online means to supplement and earn an income from the Internet which is global, not tatally affected by “Mother Nature” or politics.

  5. Jamie Ennis says:

    401k’s IRA’s are great for banks to take our money for high interest profits. We on the other hand are lucky to meet the rate of inflation with the small interest gains. The 70-20-10 percent rule allows an average wage earner less than 100k for savings, major purchases, and retirement. 300k for medical and long term care expected for a couple. Seems to be quite a gap. Do we need to take institutional money and put it into a higher return like private business?

  6. All good points, but I’d add – living it up for today, rather than thinking about halving today’s fun $$s with future fun $$s.

    Eat, drink and be merry TODAY, can be costly when there’s no money saved to do that in your old age as well.

    The shrunken lifestyle changes will be harder on those folks I think.

    Save for tomorrow’s fun, too! I include having my health, food and a roof over my head in my golden years as part of the fun lifestyle I hope to have in the future as well.

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