Retirement Saving: Stop the Excuses

No matter what your excuse is for not saving for retirement, it's time to figure out a way around it

Aug 16, 2014 at 11:45AM

I have heard pretty much every excuse in the book when I ask people why they haven't saved more for retirement. Some say things like "I just can't afford to save right now" or "It's too late to start now", and some say "I have no idea how to get started."


Whatever your excuses are for not saving as much as you should for retirement, they are just that – excuses. Here are some of the more common excuses and why you shouldn't let them get in the way.

I can't afford it
First of all – yes you can. If you have a job and can afford your basic living expenses, you can afford to save something for your retirement.

Pretty much everyone in the U.S. has access to a tax-deferred retirement account, either through an employer's plan or through a traditional IRA you set up yourself. With these accounts, a dollar saved doesn't really cost you a dollar.

For example, anything you save in a traditional IRA could qualify for a tax write off. And, if you are not covered by a retirement plan at work, there is no income limit to be eligible for a deduction.

If you have a low income, you could qualify for additional benefits to make it easier to save. The IRS actually has a tax credit designed to encourage people who "can't afford it" to start saving for their retirement.

The Retirement Savings Contributions Credit gives you a tax credit worth up to 50% of your first $2,000 in retirement plan or IRA contributions. To get the full credit, your adjusted gross income must be below $17,750 for single taxpayers (double for married filing jointly), but there are partial credits available for incomes up to $29,500. This is literally free money to save for your retirement.

It's too late
No such thing! While it's definitely better to start early, anything is better than nothing, especially if you earn a decent salary and can afford to play catch-up.

For the 2014 tax year, the IRS allows an additional $1,000 in IRA contributions for people over 50 years old, meaning you can contribute $6,500 this year to a tax-advantaged retirement account. And this amount is likely to rise over the next several years to adjust for cost-of-living increases.

As an extreme example, let's say you are 50 and don't have a nickel saved for retirement. By investing $6,500 per year in an IRA, assuming 8% average annual investment returns, you could have nearly $200,000 put away by the time you turn 65. And if you're willing to wait until you're 70 to retire, your nest egg could be more than $325,000.

Assuming you withdraw 4% of this amount in retirement, that's nearly an extra $1,100 per month added to your social security income. You won't exactly be "living the high life", but it's definitely better than social security alone.

Now, odds are if you're 50 you aren't in such bad shape, but the point is that whatever you do now can make a huge difference in your post-retirement standard of living.

It's too early to start thinking about retiring
This is perhaps the worst excuse I've ever heard. As an investor, the most powerful weapon you have at your disposal is time, or more specifically, the effect of time on compound returns.

If you want to retire at 65 with $1 million in the bank, assuming 8% returns, you'll need to start investing $484 per month if you start at age 30. Starting just five years earlier, that amount is nearly cut to just $322 per month.

The earlier you start, the easier it'll be to reach your goals. $1,000 compounded at 8% annual returns will grow into almost $22,000 after 40 years, and 8% is actually pretty low on a historical basis (S&P average annual return is 9.4%).

I don't know where to start
You're not alone. The world of stocks, bonds, and mutual funds can be confusing. However, the best way to get started is to go ahead and open up an IRA with the brokerage of your choice. Most retirement accounts have no minimum opening deposit, so whatever you have is a start.

Then, if you're uncomfortable with picking individual stocks, start out by simply using index funds such as the SPDR S&P 500 (NYSEMKT:SPY) which simply tracks the performance of the S&P 500 index. Click here for an overview of some other index funds that can take the guesswork out of investing.

The bottom line here is that you shouldn't let excuses get in the way of saving and planning for your future. It may seem like a burden to start now, but it'll be much more of a burden later on if you don't do it.

Great dividend stocks to get you started
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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