People have a lot of reasons for wanting to focus on their finances right here and now – and a lot of them of very good reasons. According to a 2012 Deloitte retirement survey, 58% of Americans do not have a formal retirement savings and income plan in placei . Why do people put off planning for their futures this way? Here are five barriers to planning for retirement and the strategies you need to get around them.
1. Investing is too scary – I can’t do it
I can relate to this one. There are weird terms, strange numbers, and a longer list of fine print than the number of side effects in a drug trial. Do you want to know the good news? You have been learning things your entire life and it’s worked out. You’ve done great. Walking, talking, arithmetic, university, and any new job you take on. This is something you’ve done your entire life. You’re a pro at this already.
You can’t build Rome in a day; you don’t learn to ride your bike without a few spills; and you won’t regret taking the time to learn the basics of retirement planning. Like anything, you’ll want to start slow and just start putting a little money away every month. Go to your bank, talk to an Investment Advisor, and open a low risk mutual fund account with monthly contributions. Read my post on how to read an investment prospectus if you’re keen to jump right in. Whatever you do, just get started, the rest will come if you can devote a little bit of time to reading a little bit and/or talking to a (fee only) Financial Advisor.
Personally, I haven’t fully developed my retirement savings and income plan. I’ve used a couple of retirement calculators to get a general idea and I’ve done some reading. I know I need to do more but I feel good about starting my plan. The big take away is that these things take time to put together and will evolve as you go through life – priorities change.
2. I don’t have a formal plan; I’m just going to wing it
Don’t do this. Please don’t do this. This is like strapping on skis, throwing yourself down and Olympic grade ski jump, and then being surprised when you fractured your C4 vertebrae and have to communicate by blowing through a straw for the rest of your life.
If you already have taken the steps to open a mutual fund or some other kind of investment account, that’s awesome! You are on the right track and only need to develop a plan to guide your investment strategies. You don’t have to believe the first thing some investment schmuck tells you but don’t completely discount the role of professionals in helping you developing your plan either.
3. I need to pay off debt so I can concentrate on savings.
The Deloitte Retirement Survey calls this barrier “competing priorities. What this means is that you already have goals to pay down your debt, save up for a down payment, or just afford your day to day lifeii. When this happens, it’s difficult to find a way to fit in longer term goals like retirement planning. It’s hard to justify planning for something twenty years in the future when there are all these other pressing matters happening now, Now, NOW.
How do we overcome this? The Deloitte survey talks about helping customers understand at an earlier age that retirement planning should be treated as part of a larger plan. For you and me, this means understanding that we’re going to have goals all through life and that retirement can fit into the picture. You can save up for a house and put money away for retirement – they don’t have to be mutually exclusive. Taking a more holistic approach to our finances will helps us in all stages of our lives.
4. I never got around to it and now it’s too late.
It’s never too late. Every little bit helps. There’s retirement planning strategies for every age, income, and risk tolerance level. People are starting every day and at every stage of life. You’re not alone; lots of people had things that required their complete attention and resources. Maybe there was a family illness, or you really wanted to pay your child’s university tuition, or you just didn’t think about it until now.
It’s okay. Start now and figure out what you need to do to catch up. Be realistic and be kind to yourself. Guilt or frustration will only paralyze you further. Do your best to forget about it and move on.
5. I never got one done before I ended up retired. Now I just plan to live based on what I have.
I don’t want to sound like a pessimist but government benefits are not designed to support the quality of life most people want in their retirement. In 2012, the maximum amount you could receive from CPP (Canadian Pension Plan) was $986.67 a month with the average amount collected landing closer to $500 a monthiii.
Social Security works a little differently in the U.S., it factors in conditions like your wages and age at retirement. Assuming a $40,000 a year salary the year before you retire, the maximum benefits you can receive if you retire at age 67 years is $1189 a monthiv.
Of course these totals aren’t the complete picture for your retirement. There are also a number of government and non-profit subsidy programs that exist to supplement your federal benefits…but it’s still going to leave you wanting. You can bet that a budget for your dream trip to Tahiti isn’t going to be found in the $200 extra income the government allows you before gouging at your benefits.
Take control of your future and start your retirement plan today. If you want to smart small, check out my post on Money Market Funds.
The barriers quoted here were actual concerns brought forward from the Deloitte Retirement Survey, an online survey conducted by Harris Interactive on behalf of the Deloitte Centre for Financial Services. Approximately 4500 respondents were surveyed from various geographic, income levels, and age groups
i. Meeting the Retirement Challenge New Approaches and Solutions for the Financial Services Industry. Rep. Deloitte Center for Financial Services, Aug. 2012. Web. 24 Jan. 2014. http://www2.deloitte.com/global/en/pages/financial-services/articles/meeting-retirement-challenge.html
ii. Meeting the Retirement Challenge New Approaches and Solutions for the Financial Services Industry. Rep. Deloitte Center for Financial Services, Aug. 2012. Web. 24 Jan. 2014. http://www2.deloitte.com/global/en/pages/financial-services/articles/meeting-retirement-challenge.html
iii. Borzykowski, Bryan. “Retirement 101: Canada Pension Plan (CPP).” Canadian Living n.d.: n. pag. Web. 24 Jan. 2014. http://www.canadianliving.com/life/money/retirement_101_canada_pension_plan_cpp.php.
iv. “Social Security Quick Calculator.” Quick Calculator. Social Security Administration, n.d. Web. 24 Jan. 2014. http://www.ssa.gov/OACT/quickcalc/index.html.