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3 Reasons Why You Don't Become A Retire Rich




Getting comfortable comfortably takes a lot of money – often $ 1 million or more. You don't need a six-figure income to save that much, but you need a plan and discipline to stick to it. Still, many people make short-term choices that give them hope to withdraw with enough money. Here are three mistakes you can't afford if you hope to get rich.

1. You guess how much you need to save

Study after study has shown that people tend to underestimate how much they need to save for retirement. Transamerica found that baby boomers and Gen Xers estimate they will need $ 500,000 on average for retirement, while millennials believe they will do just $ 400,000. But the average pensioner's consumption habits tell a different story.

  Confused couple going over economy

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The Bureau of Labor Statistics states that the average household headed by an adult 65 years or older spends nearly $ 50,000 per year. If your pension lasts 20 years and you spend so much each year, you need $ 1[ads1] million to cover all your expenses. You don't have to save all this on your own, because Social Security will cover some of that, but $ 400,000 to $ 500,000 in personal savings probably won't be enough. If you live in your 90s, which is becoming more likely thanks to advances in medical treatment, retirement can last even longer than 20 years and cost you even more.

To avoid draining your retirement savings while still alive, you must make a personal estimate of how much you need to save. Start by deducting your ideal retirement age from life expectancy (plan to live to the 90's if you are reasonably healthy). It will give you the number of years you should plan to become a pensioner.

Then, list your estimated annual cost of living, and keep in mind that some expenses, such as health care, may go up, while others, such as child care, may go down or even disappear. Multiply your living expenses by the number of years you retire and add 3% annually to inflation. A pension calculator will do this part for you. Use 5 to 6% for the annual investment rate to be conservative. Your calculator will then tell you how much you need to save overall and per month to reach your goal.

Deduction of these is all the money you expect from an employer 401 (k) match, pension or social security. You can estimate your Social Security benefits by creating a Social Security account if you are not sure how far your benefits will go into retirement. The rest is how much you need to save on your own.

2. You do not save regularly.

The best-laid retirement plan is worthless if you do not follow through on the savings part of it. Automate your savings if you struggle to remember to spend the funds on your own. The 401 (k) should allow you to earmark a percentage of your income for retirement each pay period, and the IRA can also provide you with an option for recurring contributions.

Consider reworking your budget if you are not saving for retirement because you cannot afford it. Look to cut your monthly spending by eating less, canceling subscriptions you no longer use, and finding other accessories. Or you can look for ways to increase your income, like getting an extra job or working overtime. If none of this works, you may need to redo your retirement plan. Delaying it by a few months or years reduces how much you need to save while giving you more time to do it. It can also increase your social security checks if you earn more in the later years than you were in the first years of your career.

3. You withdraw money from retirement accounts to cover other expenses.

In most cases, you pay a 10% penalty for early withdrawals, plus income tax if the money comes from a tax-deferred account, when you withdraw money from your retirement account before reaching 59 1/2. There are exceptions to this rule for a first-time home purchase, educational expenses, or if you make substantially equal periodic payments (SEPP). But even if you can avoid the obvious punishment, you will still be hurting their savings for long-term growth, even if you repay the money with interest over time.

Imagine borrowing $ 10,000 from a 401 (k) for a first-time home purchase. You must pay it back with a 6% interest over 10 years. You will end up repaying the first $ 10,000 you borrowed, plus an additional $ 3,322 in interest for a total balance of $ 13,322. But if you had left the money in your retirement account and it had earned a 7% annual return , $ 10,000 could have been worth $ 14,203 after 10 years. And the difference between the two amounts can be even greater if you borrow more, take a longer loan or have a greater spread between the pension plan's borrowing rate and the annual return on your investments.

Avoid dipping into retirement accounts except as a last resort. Save in an emergency fund to cover unexpected expenses such as medical bills or job losses. For large purchases like a home or car, budget a certain amount each month and delay the purchase until you've saved enough to reach your goal.

If you avoid the mistakes above, you should be able to save enough to last the rest of your life. More importantly, you have the peace of mind that you are prepared.



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