Many folks dream of retiring early and leaving the workforce ahead of their peers. But for other folks, simply retiring on time is a more realistic goal to aim for. When we talk about retiring on time, we generally mean retiring at full retirement age for Social Security purposes, which, depending on your year of birth, is either 66, 67, or somewhere in between. But if you're not careful, these five dangerous habits could destroy your chances of retiring on time -- or at all.
1. Not following a budget
Many people think they don't need a budget, but without one, you'll be hard-pressed to know where your money is really going month after month. And that's a problem, because the more money you waste carelessly, the less you're likely to have available to sock away in a retirement fund.
The solution? Create a budget and make sure you're not maxing out each paycheck you get (or, worse yet, spending more than what you earn). If you see that you're being too liberal with your spending, you can cut back on some (or a lot of) nonessential expenses to free up the cash you should really be setting aside for the future.
2. Not paying yourself first
Though you can expect Social Security to provide you with some income in retirement, it won't come close to paying all of your bills. As such, you'll need savings of your own to ensure that you have enough money to live on, and that's why it's crucial to contribute steadily to an IRA or 401(k) during your working years.
The problem, of course, is that it's easy to neglect your retirement savings when life's more immediate expenses get in the way. A smarter solution, therefore, is to pay yourself first. Sign up for your employer's 401(k) plan so that a portion of each paycheck you get automatically lands in savings before you can even touch it, or find an IRA that will allow you to arrange for automatic deposits that achieve the same purpose. If you don't pay yourself first, there's a good chance you won't end up paying yourself at all, and that's a good way to fall short on retirement income.
3. Ignoring your retirement plan investments
Your IRA or 401(k) isn't something you should just set and forget. If you fund a retirement account but ignore it after the fact, you'll be doing yourself a major disservice. Poor returns on your investments can inhibit your savings' growth, while hefty fees can eat away at otherwise strong returns. Therefore, plan to check in on your investments at least twice a year and make sure they're performing reasonably well. At the same time, always be on the lookout for lower-cost investments, like index funds, that can help you preserve more of your savings.
4. Carrying loads of debt
The more debt you carry, the more money you'll throw away on interest payments. And the more money you throw away, the less you'll have available to save for retirement. If you're loaded up on debt but are serious about retiring on time, you'll need to work on eliminating some of it. So start with the bad kind, like credit card debt, and once you've paid that off, examine your mortgage and figure out if it's too high. As a general rule, your housing costs, including your mortgage payment, property taxes, and insurance, shouldn't constitute more than 30% of your take-home pay, so if they do, it might be time to downsize or move someplace less expensive.
5. Not committing to a financial plan
Though not everyone has a formal retirement plan in place, folks who do are more likely to feel good about their chances of leaving the workforce on time than those who don't, according to a survey by TD Ameritrade. In fact, in that same report, workers who put together an official plan had close to double the amount of retirement savings as those without one ($460,000 versus $239,000).
Your financial plan should map out your savings goals, retirement lifestyle goals, and insurance needs, among other things. If the idea of creating one on your own seems daunting, enlist the help of a trusted financial advisor. The sooner you set up that plan, the easier it'll be for you to get on track, thereby increasing your chances of getting to retire when you want to.
Retiring on time is a reasonable goal, and one that's achievable if you set your mind to it. Avoid these bad habits, and with any luck, you'll get to make your grand workforce exit as you see fit.