There are many reasons we defer our dreams of financial independence.
Here are five of the most common psychological barriers and how to overcome them:
I can’t afford it. Sure, you have lots of competing uses for your money. Some types of spending are locked in each month — paying your mortgage, for example. And some of your dollars go to nice-to-haves, such as eating out or taking a weekend trip. It might feel as if nothing is left over, so saving for retirement seems almost impossible given your present lifestyle. But someday you’ll have to get by without a paycheck. While Social Security provides a monthly income, it isn’t likely to replace your working years salary. If you make it to retirement, you’ll probably live to be close to 90 and can expect some expenses — such as health care — to go up. Unless you’re independently wealthy or can count on family members to care for you, you can’t afford not to save for retirement.
I have many years before I need to think about retiring. As we move through our 20s, 30s and 40s, caught up with jobs and families, it’s easy to put off retirement planning. But the most powerful aids to planning are math and time. The longer you have until retirement, the more you can build up your savings through compounding and the less you’ll need to invest each month. The earlier you start, the better. But even if you’re just a decade away from retirement, you can set aside a good chunk each month. And you can boost your savings by committing to increasing your savings amount each year.
I don’t know how to get started. For many people, this is simple: Go to the next enrollment meeting held by your company’s retirement plan. This meeting, which usually takes an hour or less, will break down the steps you need to take to start saving in your plan. This includes educating you about how to generate retirement income, select investment options and determine what percentage of your salary you want to contribute to your account. You’ll also learn about the fees and expenses associated with the account. Contact your plan administrator for more details on how to join now.
Planning for retirement is too big for me to tackle right now. Retirement planning is, in actuality, life planning. You should ask three essential questions: What do you have? What do you want? How do you get what you want? These questions can be stressful, but even so, they’re important. Wishing won’t make the problem go away. Try taking small steps by attending a financial education seminar offered by your employer or discussing your situation with a qualified financial advisor. By putting together a more measured financial game plan, you can set goals for your saving and spending habits.
Stocks and bonds are risky. There’s no avoiding risk in investing. Even stashing cash in your mattress doesn’t relieve you of the risk of a fire — or inflation, which nibbles away at your purchasing power. Stocks — and mutual funds that invest in stocks — offer one of the best ways to beat inflation over the long haul. The risk of investing in stocks, while never zero, goes down the longer your time horizon for investment. Bond investments also carry risks, but nevertheless deserve a place in every retirement portfolio. Especially for those nearing or entering retirement, bonds can offer a steady flow of income and often produce an attractive rate of return.
The bottom line: Unless you’re independently wealthy or can count on family members to care for you, you can’t afford not to save for retirement.