Maybe because you’ve fallen into one of these three common retirement traps, says Gregory Salsbury, Ph.D., author of “Retirementology:Rethinking the American Dream in a New Economy.”
Read ‘em and plan your escape route, ASAP:
Trap #1: You’re a “present spender”
“Many people see retirement as something that happens to them later,” says Salsbury, and that can make you lose sight of the connection between what you spend now—and what you want then.
Instead, “you should weigh the future whenever you’re pondering a big purchase,” Salsbury says.
Say you need a new car and can afford to spend $30,000. Is that a retirement decision? Well, if you spend $20,000 on a pre-owned model instead, and you can bank the $10,000 difference, that’s a bump for the future.
You may still opt for the new car, but if you look at things in this light, you’ll feel more motivated to explore other options. “All money is retirement money,” says Salsbury.
Trap #2: You’re getting the wrong advice
An advisor who focuses only on how to grow your money may not pay attention to your emotions surrounding it—and feelings drive behavior. “The best advice in the world is worthless if you never take it,” says Salsbury.
Hunt for a financial planner you click with on an emotional and a financial level. You may not need a money shrink, exactly, but it’s essential to deal with someone who understands how comfortable you are with risk, whether you’d hesitate to make certain types of investments, or you’re prone to panic when the market hiccups. A little understanding on the part of your advisor can save you from making a very expensive mistake or oversight.
Trap #3: You’re overinvesting in your home
Remember when you counted on the equity in your home as part of your retirement plan? Millions did, but 2008 blew up that fantasy.
The recession knocked 54.4% off the net worth of households headed by people 35-44, according to a December 2012 report by the U.S. Congress Joint Economic Committee. Those 45-54 were dinged 39.1%.
Most of the loss in net worth came from plunging home values.
Bottom line: Your home is an investment—up to a point—but it’s unwise to overspend on renovations that aren’t going to add to its resale value. And it’s plain foolish to count on $X amount in equity, which could evaporate in another downturn.
Last, live a little. Yes, you could save every penny—and that would be great for your future. But it won’t do much for your social life this weekend.
How do you balance the need to maximize saving (see Trap #1) with maxing out quality of life?
Remember that a beach vacation or a kitchen reno you love can pay off in emotional equity, fueling your happiness now as you take steps toward your security later. Saving for retirement takes stamina—and optimism—so plan for that too.