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Common Myths about Saving for Retirement

It goes without saying that one should plan early for their retirement nest egg and for those lucky enough to be working for a firm that provides an IRA or compatible retirement plan, you are off to a good start. For those that do not have a retirement plan with their employer or you are in business for yourself, there are many options available to you as well. According to a study by the Economic Policy Institute, the average family puts away only $5,000 for retirement and 43% of Americans don’t have any retirement savings at all. These statistics can be scary. What leads people to shy away from investing in their future are many. Here are a few reasons:

There’s Plenty of Time to Plan for Retirement

No, there isn’t. It is never too late to begin an IRA account, but the longer you wait, the less money will be accrued when you retire. Gobankingrates.com has put together a financial calculator that shows how much you would need to save each month to reach a retirement egg of $1,000,000 by age 65. For example, if you put away $95.00 per month at age 20 at an investment that yields 10%, you can reach that million mark by age 65, but if you start at age 30, under the same criteria, you will need to stash almost double that to get to the million dollars.

It’s Too Risky to Invest

A common myth, mainly among millennials is that investing in the stock market can be risky in the short term; however, over time, especially over 40 or 50 years, expect to reap some nice rewards. Gobanking.com has provided an interesting chart that shows the amount of money invested over time in relation to the age that you have begun to invest. In addition, diversifying your portfolio is highly recommended.

I’ll Survive on My Social Security Benefits

There is the common scare that Social Security will run out of money and younger workers will not get their benefits, but even if this scenario comes true, the federal government would still be able to pay out 77% of projected benefits if all of the social funds are exhausted. And keep in mind, this is the worst projection. Many experts don’t believe that this will occur, at least for now.

With that said, don’t count on living on social security only. Although an important component, consider it as a supplement to your retirement nest egg. If done correctly, you will be able to live a comfortable lifestyle in your senior years.

A Million Dollars will Keep Me Safe

Earlier, we used a million dollars as a reference to determine how much you would need to invest in relation to your age, but realistically, a million dollars will most likely not be enough. Consider this: if you achieve the $1 million goal and spend $75,000 of that each year (this includes all expenses and entertainment), in 13 years, you would have exhausted all of your retirement. Strive for a three-million mark or even higher. You can use the rule of 25 as one calculation for your retirement.

I Will Wait for My Inheritance

Not a good idea. Hard to believe, but 15% of people surveyed expect to win the lottery and another 11% expect to receive an inheritance. Recent statistics have shown that a lot of parents have used up their money as they reach higher senior years. Be sensible and stick to the retirement standards of saving.

I Won’t Live That Long So It Doesn’t Matter

Another myth, especially with the advent of recent medical technologies that are advancing at an extraordinary rate. 20% of retirees have underestimated their life expectancy by more than a decade.

I Can’t Afford to Save

Many people don’t realize how much they can save if they became just a little more savvy.  Frivolous Spending appears to be the rule and not the exception. Some examples of saving are:

  • Bringing your lunch to work everyday instead of going out to eat, you can save about $50 – $60 per week. That’s $200 or more per month.
  • Don’t go to just any gas station to fill up. Gas prices can change by more than 10 cents / gallon from one station to another. Look for the stations with the cheapest prices.
  • There are many ways to keep the interest costs down when paying credit cards. Paying them off in full each month is one.

There are plenty of more options to save. You’ll be surprised how much you can accumulate each month.

In Summary

Save, save save can mean the difference between a minimum retirement portfolio to a comfortable retirement lifestyle. It is all based upon how much you can put away each month and remember, the earlier you start, the more money you will accumulate in your senior years!

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