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5 Bad Habits That Will Stop You From Being Financially Secure in Retirement

By Christy Bieber – Apr 4, 2020 at 7:03AM

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How many of these habits do you have?

Financial security is something every senior deserves. Sadly, not every retiree has the cash to feel comfortable during their later years.

You don't want to be forced to scrimp and save every dollar when you should be enjoying the fruits of your labor, so it's a good idea to break bad habits now that could cost you as a retiree. 

In fact, there are five habits you'll have to give up to have the cash you need when it's time for you to leave the working world.

Colorful letters spelling out "401k" sitting next to a piggy bank

Image source: Getty Images.

1. Spending every dollar you earn

Social Security isn't designed to be your sole source of retirement support. You need savings you can make withdrawals from. Unfortunately, if you continually spend every dollar on your needs today, you won't have enough for a secure tomorrow.

The earlier you start investing for retirement, the easier it will be for smaller investments to add up over time. But even if you start young, you'll likely have to invest around 10% to 15% of your income throughout your career to retire with enough. If you wait, the amount you'll need to put aside will be even higher.

To break the habit of spending every dollar, pay yourself first by automatically investing money into your 401(k) or IRA with every paycheck. You can set this up with your 401(k) plan administrator at work, or with your bank or brokerage firm if you're investing in an IRA. 

2. Taking on tons of debt 

If borrowing is your go-to habit for anything you can't afford, this habit is putting your retirement security at risk. 

Taking on high-interest consumer debt such as credit card debt is a big problem because you'll pay big money to your creditors that can't be invested for your future. But borrowing too much for a house or to send your kids to college can also be a problem.

Not only will big payments affect your ability to save for retirement, you could also end up still in debt in your 60s or 70s. That means you'd need to account for those payments in your retirement budget, so your nest egg would need to be even bigger before you could afford to retire. 

3. Shying away from investing

Putting your money in the stock market can be really scary -- especially in volatile economic times or when you're worried about a recession. But the reality is that you need to earn the kind of return that only stocks have consistently provided over the long term. 

If you opt for safe investments with limited upsides, you'll need to save a fortune to build a big nest egg -- and most people can't afford to do that. It's imperative you have your money working for you unless you can put thousands of dollars in a retirement account each month. 

The good news is, it's easy to break this bad habit by simply putting your money into the market. To find out how much, subtract your age from 110, and put that percent of your retirement account into stocks. If you aren't comfortable investing in individual companies, exchange-traded funds make it easy. 

4. Taking cash out of your retirement accounts early

Making early withdrawals from your retirement accounts, or borrowing from your 401(k), may seem harmless -- especially if you qualify for a penalty-free distribution because of economic hardship or because you've had a baby.

But when you take out this money, it no longer works for you or grows to provide for your future. This makes a surprisingly big impact over time as you lose the compound interest the invested funds would've provided. 

To break this habit, commit to leaving your money invested once you've put it in your 401(k) or IRA. Don't take it out unless it's truly a dire situation and you have no other options for securing funds.

5. Missing out on tax breaks

The government provides a lot of help for people who want to save for retirement. In fact, there are many different kinds of tax-advantaged accounts, including 401(k) and IRA accounts. If you're putting your money into a regular savings account or taxable brokerage account instead of taking advantage of ones that provide tax benefits, you're missing out.

You also miss out on tax breaks each year when you're eligible to max out a 401(k) and IRA, but you don't. While it might be financially infeasible to contribute up to the limit each year, you should try to contribute as much as possible.

Give up these bad habits today

By breaking these bad habits today, you can make sure you're saving enough, investing your money the right way, and taking advantage of the help that's available to you. When you're retired and enjoying life without financial worries, you'll be glad you made the effort. 

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