Five Truths That
Make Saving for Retirement Less fearful and stressful
There
are a lot of reasons, but one big one, according to the study’s findings, is that people don’t know
how retirement plans work. Another is the perception is that people can’t
afford retirement savings. Still others include some of the statements I see in
reader emails, often repeated. Here are five simple facts about retirement
savings. Each one of these hammers down on a myth I often hear about retirement
savings.
Retirement
Savings Plans Aren't Scams
A
retirement plan is just an investment account with a few extra rules attached
to it, most of which benefit a person who is saving for retirement. That’s it.
An
investment account is like a bank account, except that instead of having an
account at your local bank, you have it with an investment firm. Just like a
bank account, you deposit money. Just like a bank account, you can withdraw
money from it. The only difference is rather than a bank just holding onto your
money, an investment house will use it to buy investments at your
discretion–stocks, bonds, and so forth. It’s not a scam. It’s not something to
be afraid of.You Will Survive Just Fine With a Slightly Smaller Paycheck
Many
people are absolutely afraid of the idea of seeing their check get any smaller.
They’re barely making ends meet as it is–how can they possibly live with
a smaller check?
Here’s
the truth: most of us spend just a little more freely if we have ample cash in
our checking account. It’s a lot easier to buy a bottle of soda at the gas
station if you have plenty in checking. It’s a lot easier just to roll through
Starbucks when it’s not going to grind you down to nothing. Yet, when we look
at our account and see it’s about empty, we’ll skip those treats with no hard
feelings. They’ll come around again.
For an
awful lot of people, all retirement savings does is spread out those treats a
little bit. If you put, say, 10% of your income into your 401(k), you’re
usually only dropping your paycheck by 7% or so. Even if you just save 5%,
you’re only actually cutting your paycheck by 3%. That’s $3 out of every $100.
For most paychecks, that’s a stop at the coffee shop–and that’s about it. You
won’t even miss it. It seems like a big deal, but when it comes down to the
reality of your paycheck, it really fades into the woodwork quite seamlessly.
Virtually
Any Investment Option is Better Than Not Investing At All
Some
people get locked down because of the investment choices. They’re worried about
not picking the right one and get so tied up in that choice that they simply
avoid ever signing up.
Here’s
the truth: you’re better off closing your eyes and pointing at one at random on
the page than you are skipping even a week or two of retirement savings. Yes,
you might not pick the “best” one. Guess what? If you simply take the
recommended option, you’re probably going to get pretty close to the best
results.
What if
I change my mind later? The money is in a retirement account. You can change
your investments around without worry or taxes.
Sign-Up
is Simple and Someone Will Walk You Through Every Step
If
you’re intimidated by the applications, don’t be. Just ask for some help at the
human resources office. Most businesses have someone on hand who can help you
go through the paperwork. Most of the paperwork amounts to personal
information. Beyond that, you mostly just have to say how much you’re wanting
to save each month and, beyond that, you just choose what you want to
invest it in.
The
information you need to give is really straightforward. If you are unsure about
the investment choices, as suggested above, just pick the default one. You can
change it later if you decide something else will work better.
Not
Saving for Retirement Has Some Seriously Negative Downsides
If you
choose to save nothing for retirement, the only income you’ll have when you
reach your late sixties and seventies is Social Security. Unless you live extremely
lean, Social Security won’t cut it for an enjoyable lifestyle. Another aspect
of reaching retirement age is the increased expense of medical bills. Retirees
without any savings generally rely on basic Medicare
for medical expenses, but what about the costs of long-term care?
By not
signing up, you’re choosing to add a lot of misery to your later years just so
you can have a few minor creature comforts now. It’s a pretty poor long-term
tradeoff. In the end, there’s no excuse not to be saving for retirement.
You can afford it and you don’t need to have a lot of knowledge to get
started. The downsides to not doing it are tremendous. If you haven’t signed up
for a retirement plan at work, you owe it to yourself to do it right now.
If your work doesn’t offer one, ask your friends for a recommendation about
starting a Roth IRA—and do it right now. You won’t regret it
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