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3 Crucial Pieces of Advice Retirees Would Give Their Younger Selves

By Katie Brockman - Jan 30, 2020 at 9:00AM

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These tips can potentially make or break your retirement.

Everyone makes mistakes when managing their finances, but sometimes those mistakes aren't apparent until years later. It's only once you reach your senior years that you may suddenly realize all the things you should have done differently.

Fortunately, today's workers have a wealth of knowledge at their fingertips, which makes it easier to plan for the future and avoid potentially disastrous retirement mistakes.

A recent survey from TD Ameritrade asked retirees what advice they would give their younger selves to better prepare for their senior years. These are some of the most popular tips retirees believe would have helped them save more for the future.

Senior couple sitting on a bench at the beach

Image source: Getty Images.

1. Start saving and investing early

It's never too early to start saving for the future, and 75% of adults currently in their 70s said they would encourage their younger selves to start saving earlier in life, according to the TD Ameritrade survey.

The longer your money has to grow, the bigger investment gains you'll see over time. That's because compound interest allows your money to grow exponentially the longer it sits untouched in your retirement fund. So when you begin investing earlier in life, you don't need to save as much each month to build a robust nest egg.

For example, say you have a goal of saving $750,000 by age 67. If you started saving at age 25, you'd need to stash away just under $275 per month to reach that goal, assuming you're earning a 7% annual rate of return on your investments. But if you waited until age 45 to start saving, you'd need to save roughly $1,300 per month, all other factors remaining the same.

Also, approximately 65% of adults in their 70s say they would specifically advise younger workers to begin investing for the future, and it's important to distinguish the difference.

Stashing money in a savings account isn't a bad idea, but the best way to see high returns on your money over the long run is to invest it in the stock market. Even the best savings accounts only boast interest rates of around 2% per year, while the stock market sees average returns of anywhere from 6% to 10% per year. Of course, there will be ups and downs with the stock market, but over time, you'll generally see positive returns. If you leave your money in a savings account long-term, however, it may not even be able to keep up with inflation. You don't have to pick stocks to be successful. You can enjoy the same growth as the broader market by investing in a low-cost exchange-traded fund.

2. Pay off debt as soon as possible

Approximately two-thirds of those in their 70s say they would advise their younger selves to pay off debt sooner, and that's a smart move.

High-interest debt, in particular, can devastate your finances and make it much harder to save for retirement. Especially if you're saddled with loads of high-interest debt, you may end up paying thousands of dollars in interest alone, and it could take years or even decades to pay off your debt completely.

When you're trying to balance paying off debt and saving for retirement, the key is to look at the interest rates. Start by paying off the debt with the highest interest rate -- even if it's not the debt with the highest balance. This type of debt will be the most costly if you don't pay it off quickly, so make it your first priority. From there, work your way down the list from highest to lowest interest rate until you're debt-free.

Also, keep in mind that you don't have to pay off all your debt before you focus on other financial goals, like saving for retirement. If you're paying more in interest on your debt than you're earning in returns on your retirement fund investments, it makes sense to put more money toward that debt. Then once your highest-interest debt is paid off, you'll have more spare cash to supercharge your retirement savings. If you wait until all your debt is paid off before you start saving, you'll likely run out of time to save as much as you need.

3. Establish an emergency fund

An emergency fund is more important than it may seem, and 61% of retirees say they wished their younger selves prioritized it more.

Without an emergency fund, you're putting your entire financial situation at risk. If you're slammed with an unexpected expense and you don't have enough cash to cover it, you may be forced to rack up credit card debt or tap your retirement savings -- both of which have long-term consequences. It may take years to pay off your debt, costing you hundreds or even thousands of dollars in interest during that time. And if you pull money from your retirement account, that can permanently affect your long-term savings by costing you valuable time to let your investments grow.

Most experts recommend saving enough in an emergency fund to cover three to six months' worth of general living expenses. And although it may take some time to build a healthy emergency fund, having some cash on hand to cover unexpected expenses can save you a lot of money and frustration down the road.

Nobody has all the answers when it comes to retirement planning, but those who have been through it and learned from their mistakes often have a wealth of knowledge about the dos and don'ts of preparing for your senior years. By taking this advice to heart, you can ensure you're doing as much as possible to start retirement off on the right foot.

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