3 Things You Should Put Off Until Your Retirement Is on Track

Source: 401kcalculator.org via Flickr.

The largest and most important investment you'll likely ever make is funding your retirement. Getting a plan in place to fund it successfully should be your first major long-term financial goal. Indeed, as important as the three common financial goals discussed below may be, they really only make sense for you to pursue after your retirement plan is on track.

To be clear, your retirement doesn't need to be fully funded before you put money toward any other priority. Once you have a decent plan in place and are contributing to your retirement in-line with that plan, you can certainly fund the other goals that matter to you with any additional cash flow you have.

What should take a back seat?
Delayable priority No. 1: Funding your children's education. Of course you love your children and want the best for them. Still, your retirement plan should be on track before you put one red cent toward their college expenses.

For one thing, there are ways to pay for college without taking on substantial debt, such as:

• ROTC
• Co-op programs
• Starting in community college, followed by graduating from an in-state public school
• Employer tuition reimbursement (Starbucks, for instance, offers full tuition reimbursement for anyone working 20 or more hours a week) 
• Taking classes during the evening, weekend, or part-time while working
• Scholarships, grants, or working campus jobs

For another, if your kids do need to take out a loan to pay for part of their schooling, you could always help with the debt payback after graduation. Should you find yourself in the position of having an over-funded retirement plan, for instance, you can take some of that excess to help your kids out.

Delayable priority No. 2: Paying off your mortgage. Generally speaking, debt is an anchor that weighs you down, and for most debts, it's smarter to pay off what you owe before you start investing. A mortgage is debt, but it has a few things going for it that make it one of the only debts you can reasonably consider keeping while you get your retirement plan in place.

For instance, mortgages generally carry low interest rates, and mortgage interest is often tax deductible. According to Bankrate, average interest rates for a 30-year mortgage are currently around 4%. While the stock market carries no guarantees, long-term stock returns have been in the neighborhood of 9% to 10% annualized. That gap in rates combined with the likely deductibility of your interest payments give you a legitimate shot of winding up better off over the life of your mortgage by investing instead of accelerating your mortgage payment.  

Delayable priority No. 3: A new car. Safe, reliable transportation is very important, and in many parts of the country, public transportation isn't sufficient on its own to get you everywhere you need to be. Even with those realities, you don't need a brand-new vehicle to get yourself where you need to be. Indeed, according to Edmunds, a typical new car loses 11% of its value as soon as you drive it off the lot, and around 15%-25% of its value on top of that each year for its first five years of existence.  

Financially speaking, you'll very likely be better off buying a gently used car and driving it into the ground than buying a new car and doing the same with it. If your retirement plan is on track, and you still want either that new car smell or the peace of mind that comes with knowing you're not buying someone else's problems, then feel free to buy that new car. Otherwise, the luxury of a brand-new car can certainly wait.

Why your retirement should come ahead of those
While education, housing, and transportation are all worthwhile goals, there are at least three very good reasons having an on-track retirement plan should be prioritized higher.

Reason No. 1: It's cheaper and easier that way. The sooner you get your retirement planning on track, the easier and cheaper it is for you to do so. In the end, that can actually leave you with more money to spend on your other priorities. Say you have a goal of retiring a millionaire. The table below shows how much you have to sock away each month to wind up there, depending on the number of years you have until you retire and the rate of return you achieve:

Table calculations by the author.

Reason No. 2: You can use excess retirement money elsewhere. The table above contains a range of possibilities because predicting and saving exactly what you need for retirement is an essentially impossible task in the real world. In reality, you have to make your best estimate, save accordingly, and then make adjustments along the way.

If, for instance, you start young and save presuming you'll earn 6% returns, then if you wind up earning 10%, you could end up with more money than you need. That's a much better "problem" to have than waking up retired without enough to cover your basic costs. Any extra money can easily be redirected to other financial priorities, while a shortfall would be tough to cover.

Reason No. 3: You can't (effectively) borrow to retire. If the other methods mentioned above aren't sufficient to cover your costs, you can take out student loans to get an education. You can borrow money to buy a car. You can borrow money to buy a house. The only loan typically marketed to retirees is a reverse mortgage, and those are frequently very expensive.

Don't put off funding your retirement any longer
With your retirement properly positioned as your first and largest long-term financial priority, it's important to start treating it as such as quickly as you can. The sooner you get started, the better your chances are of reaching that goal, and the easier your journey along the way will likely be. In addition, the more solid a financial foundation your retirement plan provides, the better your chances of reaching your other financial priorities as well. So get started now, and look forward to your brighter future.