10 Ways You’re Blowing Your Retirement Savings

Everyone wants to retire and spend the rest of their lives in comfort and happiness. However, the harsh reality is that a comfortable retirement might take a lot of time to reach for many people unless they properly and intentionally prepare for it.

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More often than not, the financial decisions you make today can have a long-term effect, especially on your retirement budget. In fact, the seemingly harmless act of taking out a high-interest loan can significantly contribute to keeping you away from the comfortable retirement life you dream of.

So, to help you optimize your retirement savings, we’ve compiled a list of ways you might unknowingly be eating into your retirement.

Why should you save for retirement?

Saving for something long-term is difficult. Sometimes, even the image of a comfortable retirement life can seem vague to many people, especially when we’re young; thus, when they compare it to a shiny new car, retirement seems to pale in comparison.

So, to drive the point home and to help convince you that saving up for retirement is well worth the sacrifice, we’ve compiled a list of reasons why you should do it.

This list would hopefully paint a better picture of what you should expect when you save for retirement.

#1 You’re probably going to live longer than you expected.

Year after year, technology keeps evolving. Along with that improvement comes advancement in medical technology. As a result, today’s people tend to live longer than the past generations. This longer life span also affects you.

So, if you were expecting to live at least 18 years in retirement, it’s possible that you end up living another 10 or more years on account of advancements in medicine.

It is important to anticipate this longer life span since it can throw off your calculations when deciding on a target amount for your retirement savings. In the end, none of your savings will be wasted, especially since you’ll be spending it all on yourself, your friends, and your family.

#2 Social security may not be enough to cover your expenses.

With today’s rapid rise in inflation, what may be enough in the past might not be enough in the present. That includes your social security.

For example, you’ll need $54k one year from now to afford a $50k lifestyle today due to the current 8% inflation rate. The worst part is that no one knows how the country’s inflation rate will change over time.

So, to consider inflation in preparation for your retirement, you need to supplement your social security with other funding sources like investments and retirement savings. These additional funds would ensure you’ll have enough resources for your retirement.

#3 You can get tax benefits just by saving.

Every paycheck, a huge chunk of it goes to paying taxes. You may or may not agree with these mandatory deductions, but the good news is that there are ways to reduce them.

One of the easiest ways to reduce the taxes you owe is by saving for retirement. The money you put into retirement plans is usually tax-deferred and even tax-free in some states, which reduces the overall taxes you must pay today and leave it for later when you’ll probably be in a lower tax bracket.

This overall deduction in taxes you owe may be insignificant to some, but when they compound over time, you’ll be surprised about how much money you save. In a way, it’s like earning free money just by saving up for retirement.

#4 You can retire independently.

One worry that plagues everyone is the fear of losing their job. They’re worried that if they lose their job, they will have no means of surviving and funding their expenses.

In a way, having a retirement plan and savings can reduce this worry and anxiety because you know that you have funds to support you. You will not need your employer’s or your family’s approval to retire.

The peace of mind you get from having these savings is insurmountable. The idea that you can retire independently without the permission of anyone is empowering.

#5 You deserve to enjoy retirement.

Lastly, there’s no better reason to save for retirement than planning to enjoy it.

We all know that workers are the backbone of society. The value you brought to the economy with your hard work is immeasurable.

The least you could do for yourself is to save up for your retirement so that you can fully enjoy it.

But, regardless of the benefits, many people don’t save enough, and others have a strong saving strategy but unwillingly splurge on a shopping spree setting them back months or even years from their goal.

10 Ways you’re blowing your retirement savings

If that already convinced you to start saving up, then keep reading. This list might help you optimize your savings because sometimes saving for retirement is simply just not enough.

If you don’t remedy these things immediately and let them foster, you can unwittingly push your retirement further away. Even worse, you may blow your savings entirely and end up old and broke.

So, without further ado, these are some things that you might be doing that are blowing your retirement savings.

#1 You keep upsizing

One mistake many people make when preparing for retirement is to keep upsizing. You might be thrilled with the amount of money you find in your bank account that you start thinking that you can afford a more expensive car or a bigger house.

Though there’s nothing inherently wrong with upsizing, the problem is that these small upgrades, over time, compound and eat up a considerable portion of your paycheck.

If you’re not careful, the extra expenses might consume the money that should go to your retirement savings. This inflated cost of living might eventually push your retirement further away.

#2 You spend too much on your children and grandchildren.

Suppose you have a child or children who are now adults out of education. If that’s the case, you should avoid indulging them and allowing them to lay back and depend on you financially. Instead, serve as their guiding light on their road to becoming self-sufficient adults and not appease them with never-ending support.

Similarly, if you already have grandchildren, only burden yourself with raising them if no one else can. You already did your job with your own children. Let them take on the responsibility of raising their kids themselves.

Furthermore, it’s not uncommon for grandparents to feel the need to spoil their grandchildren with gifts. Some will go as far as to go shopping online from outside the United States and have expensive gifts shipped to their grandchildren when they’re traveling. While giving your grandchildren gifts once in a while is fine, you should refrain from spoiling them rotten with gifts, as this can seriously eat into your savings.

Kids today usually want tech presents, which can be vary expensive, with a PS5 going for $500 and an iPhone 13 going for as much as $1,300 or more. The worst part is that, if you get them used to fancy gifts, the day you can’t afford the latest console or mobile phone, they’ll start lashing out at you for no good reason.

Remember, you can be a good parent or grandparent without excessive showering of affection through financial means.

#3 You don’t diversify your investments.

The best way to protect your wealth is to spread it among various securities and forms of investment. If there’s a danger that one adverse event could ruin that one investment, putting all your money into that asset could be a recipe for disaster. Never put all your eggs in a single basket.

By diversifying, you lower the likelihood of suffering a total loss in any one investment. When it comes to investing, having a “go big or go home” mentality focused on a single holding is an almost surefire way to blow your retirement savings.

#4 Your investments are underperforming.

Just like playing a casino game or betting on horses on the race track, risks always come with investments, and success may rise or fall at times. 

However, unlike games that rely purely on luck, investing is a calculated risk. This is why investing requires taking the time to study the markets and the business environment, current events, and your investments’ patterns in response.

If this type of analysis is not one of your key strengths, hiring an expert as an adviser is also an option. Spending a little extra to ensure the performance of your investments will be worth it in the long run.

#5 You have no healthcare plan.

You might be tempted to forego a healthcare plan if you are strong and healthy. However, we strongly advise against that. You should always pay attention to your healthcare plan because you never know when you’ll need it.

In fact, growing older, the chances of getting hospitalized increase little by little. Please remember that you won’t be young and healthy forever. Not to mention, there will always be a chance for emergencies to arise, no matter how old you are.

Having no healthcare plan means you have no safety net at all and requires covering your medical bills by yourself. Hospital bills can take your retirement savings out in a single blow and even leave you indebted if you’re not careful.

#6 You pay too many taxes.

Always make sure you are on top of your taxes. Even though paying taxes is a must, there are fiscally responsible ways to lower the amount of money you have to hand over to the government.

You might want to give up some of your salary for novated leases. This strategy is an example of a “salary package,” in which your company takes money from your paycheck to pay your monthly expenses. It can work in your favor by reducing the total amount of your income subject to taxation.

There are several more ways to take charge of your tax bill. To minimize it, we suggest hiring a knowledgeable accountant or tax specialist.

#7 You’re not careful with your money.

As humans, by nature, we are designed to want more. There will always be endless desires, be it new items, investing in a new skill or hobby, or living a more lavish lifestyle.

As a result, some people might take advantage of that mindset and lure you into a get-rich-quick scam. They will tempt you with promises of a more lavish lifestyle in exchange for your money.

As a rule of thumb, never buy into schemes that sound too good to be true, as it could lead to losing all your money.

#8 You have no emergency fund.

A healthcare plan, as mentioned above, is an emergency investment. Emergency funds serve a similar function. Always set aside a part of your income for your emergency fund. Unexpected expenses are frightening if you don’t have a fund for emergencies to shield yourself with. 

One example would be the global pandemic that occurred not long ago. If you had no emergency fund at that time and suddenly lost your job, or your business suddenly closed down, it most probably would have been a difficult two years for you.

So, to lessen the risk of losing your savings to an unforeseen event, we recommend you build your emergency fund and avoid life catching you off guard.

#9 You’re borrowing from your retirement savings.

It’s a common scenario for a person to take “just a little bit” of their retirement savings to pay for something they feel they need. Eventually, if they’re not careful, they have already spent a proper fraction of their savings, and it will take considerable money to get back on track.

The temptation to withdraw money from your savings account will always be there. However, you must be disciplined and not spend the money set aside for your future, especially considering that early withdrawals from a retirement account are usually subject to high fees imposed by the IRS.

To remedy this, open up a separate account for your savings so you don’t always see how much you have saved. After all, you can’t be tempted by something you can’t see.

#10 You spend too much on debt.

Paying interest on your debt is like throwing money away. Debt is a double-edged sword. If you aren’t careful with debt, you may end up drowning in interest without even realizing it. This only applies to bad debt, though, like high-interest car loans or credit card debt. It doesn’t apply to debt acquired to finance a profitable business or another source of income.

It will always be ideal to only borrow money if you are confident you can pay it back immediately. An excessive debt might result in a scenario where the money that should have gone into your savings would be wasted on debt interest alone.

If you currently have debt, we recommend paying it off as soon as possible to reduce the money you pay in interest. When doing so, it’s also good practice to focus on paying the debt with the highest interest rate first.

The bottom line

It will be challenging to picture living in the distant future. However, while the destination might still be far ahead, it couldn’t hurt to be prepared. We heavily recommend it. Having a retirement plan and sticking to it can help you in ways you can’t even count.

And if you already have a good deal of savings set aside for retirement, be mindful not to blow it all off before you retire since it can be easy to lose, especially if you’re not careful. Be sure to watch out for the things we listed in this article, and you’ll be just fine.

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