8/27/2014 3:30 PM ET|
5 obstacles to early retirement
People who engage in these behaviors will never be able to retire early.
Early retirement is a dream for many employees toiling away at dissatisfactory jobs. But that doesn’t mean these workers are planning their escape. The 2014 Retirement Confidence Survey by the Employee Benefit Research Institute found that half of all workers have less than $10,000 saved for retirement. That’s not enough to retire at a normal age and makes early retirement an impossible dream. Here’s why retirement in your 50s or earlier is out of reach for most people:
Spend too much money
The American consumer lifestyle dictates that we buy a lot of depreciating junk. Almost every consumer item loses its value over time. A $1,500 60-inch smart HDTV will be worth nothing in just a few years. A new car loses value moments after it’s driven off the lot and about 20 percent after the first year. That’s a lot of loss for the new car smell. We think of these things as assets, but they are just sitting around depreciating.
Most of us think it is fine to spend money because we work hard for it and there will always be another paycheck. This is a huge barrier to early retirement. If you want to retire early, you need to plan for the day that the paycheck stops coming in. Buying less stuff and getting rid of unnecessary services is a good start.
Didn’t start saving early
I am forever grateful to my dad who convinced me to start saving for retirement as soon as I started working. After a few years, I maxed out my 401k and I’ve been adding to my retirement fund ever since. Time is your best friend if you start investing early. Compound interest will make a huge difference over 40 years. If you invested $5,000 per year from age 25 to 35 and then stopped, you’ll have over $600,000 by the time you turn 65, assuming 7 percent annual gains. Putting off retirement investing until you’re in your 30s will drastically decrease your chances of achieving an early retirement.
- Also from U.S. News & World Report: 10 401k facts everyone should know
Didn’t save enough
Saving early is great, but you also need to save more. Financial planners recommend saving 10 percent of your salary, but that’s not nearly enough for early retirement. The earlier you retire, the less time you have to save and the more time you will need your nest egg to last. If you want to retire early, you need to save much more than 10 percent. This is where spending less money helps. Reducing your expenses will enable you to save more and compounding will work in your favor.
Didn’t invest consistently
Individual investors are notoriously bad at timing the stock market. Many investors sold off their stock investments during the 2007 and 2008 financial crisis and missed much of the recovery. If you’re a genius investor who can consistently beat the stock market index, then by all means do it. However, if you’re a regular investor, it’s better to figure out a target asset allocation that you’re comfortable with and invest with low cost index funds. Keep investing through the downturns and you won’t miss out on the recovery. The bear years are great buying opportunities for young investors.
Have a large family
Kids are another huge obstacle to early retirement. The USDA calculated it will cost almost $250,000 to raise a child from birth to age 18. This doesn’t even include college, which will probably cost more than that in 18 years. It costs a lot to raise a family, so if you have three or four kids, then early retirement might be out of reach.
Early retirement is a possibility for some savers, but it won’t be easy to get there. Keeping lifestyle inflation down is very difficult in our culture, but once you figure out to buy Apple stocks instead of the latest iPhone, you’ll be well on your way to early retirement. It’s best to buy income generating assets and minimize depreciating consumer goods as much as possible. Living below your means and investing consistently for many years can bring you closer to your desired early retirement.
More from U.S. News & World Report
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...Survey by the site found that half of all workers have less than $10,000 saved for retirement. That’s not enough to retire at a normal age ...
Of course it isn't - and, according to that research site, 45% of those surveyed, aged 45 to 54 have saved $9,999 or less. Age 55 and over, 34% have saved $9,999 or less. Figuring on a minimum 25 years working, that averages out to, at most, $400 per year saved which is a little bit more than one dollar and nine cents a day - not even figuring in compounding.
Of those, I'm sure there are a certain percentage that enjoy a fancy cell phone, enhanced cable/internet, daily latte, cutting edge computer/notebook owners/subscribers - just HOW much do those costs average per day? Can a person really value these (and other) perks more than their future? I wonder how many are allowing themselves to be eaten alive by consumer debt? How many treated their retirement account to unnecessary and all too easy to take out loans?
Those that experience catastrophic life events aside, many 45 and older, who should well know better, are absentmindedly making their own future mess of a bed and are their own biggest obstacle to not only early retirement, but retirement at any age. Failing to realize and refusing to repair a poor situation nets you a not so comfortable future...and quite frankly, if a person buries their bloated head in the sand, they deserve the comfort level they've got coming. For those that can't/won't bring themselves to care, it's a tough sell to expect anyone else to care.
And we get what? Democracy in the Middle East? Iraq's democracy is working out nice - let's destabilize the rest of the Middle East and start the final world war!!!
"Conservatives" want to intervene with OUR $$$ in Middle East countries, THEN they want to cut Social Security and Medicare because "we can't afford it" !!! This is an INSANE approach to future security, including retirement, in the U.S.
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