Bills, debt, unsteady income… these obstacles, and more may cause you to put off retirement planning until later. But when it comes to saving for retirement, every little bit of something is better than nothing at all. Here are 5 common roadblocks to retirement planning, along with suggestions regarding how to navigate each one.
1. Tight Budget
Putting aside a portion of money can be extremely challenging for some. If you have debt, high living expenses, or you’re not sure when your next paycheck will come or how much of it you’ll need for necessary expenses, you might be hesitant to allocate any money towards a retirement fund you can’t touch for years.
Here are a few ideas you can use if this is a challenge for you:
- Start with any small amount – 1% of your paycheck, $50 dollars a month, even smaller than that – for your 401k and some other retirement savings amounts, there is no minimum amount you are required to put in, and even a little bit over time will add up.
- See if your employer does 401k matching. Many employers will contribute a certain amount towards your 401k depending on how much you contribute yourself. That’s free money on the table! Learn more about 401k plans here.
- Refinance your loans or rebalance your budget. Needing to make lower payments on debt you owe, or finding extra money in your budget, can mean the difference between contributing something and contributing nothing.
2. Can’t Contribute the Maximum Amount
If you find yourself able to put money towards your retirement fund, but you are not able to contribute the maximum amount, you may be tempted not to contribute at all. Don’t fall into this trap! It is always better to contribute something than to contribute nothing.
If you can’t contribute the maximum amount right now, try giving yourself a smaller goal to start with, then increase your contribution over time with one of these strategies:
- One Percent at a Time: pick a small percentage of your paycheck that you feel confident contributing to your retirement savings. Increase this amount by just 1% every quarter until you reach the maximum contribution amount. 1% will make a negligible difference to your take-home amount and will allow you to adjust your budget and spending habits little by little instead of all at once.
- Count Every Dollar: similar to the first strategy, pick a dollar amount you are confident in consistently contributing to your retirement fund. Give yourself a set timeline to increase this dollar amount, such as $20 each paycheck, $50 each month, $100 each quarter…
- See You and Raise You: each time you get a raise, give your retirement plan a “raise” as well. Your overall salary will still be higher, but you’ll be increasing your retirement savings at the same time. With this strategy, you don’t have to worry about your nest egg eating away at your budget.
3. The “I’m Too Young” Mentality
If you’re in your 20s, retirement may not be something you’re thinking about right now. After all, you have years before retirement – surely you’re too young to start saving, right?
Actually, having years before retirement is what makes you exactly the right age to start saving! Check out our blog of 6 reasons to start retirement planning early. Starting to save for retirement in your 20s could mean having hundreds of thousands of dollars more at retirement than if you started in your 30s or 40s.
4. Worries About Unexpected or Large Costs
If you recently had to spend your money unexpectedly, or are worried about large expenditures that may come up that take a bite out of your finances, you may be wary of putting your money into an account you can’t touch until later.
In this case, having an emergency savings account will help greatly as well. Take a look at your budget and put a portion of your money towards a more easily accessible savings account dedicated to emergencies, and a portion towards your retirement fund. Remember, even a small amount is better than $0!
5. Lack of Know-How
At Liberty Bay, we understand that planning for retirement can be overwhelming. Deciding between account types, understanding terms like “tax-deferred” or “tax-deductible”, wondering how to diversify your portfolio… there are a lot of factors to consider, and you may be feeling unprepared to handle them all.
One solution is to talk to a retirement advisor. If an in-person advisor’s fees are too high for you to consider, robo-advisors, or advisors who provide mainly computer-based services with less customized financial plans, charge much lower fees. Robo-advisors are an easy option for beginners who want a little guidance.
Of course, familiarizing yourself with retirement planning could also mean something as simple as turning to Liberty Bay’s experts and online resources for more understanding! Take a look at…
- Our article about Maximizing Retirement Savings
- Our FA$Ttrack courses on 401(k) Plans, Individual Retirement Accounts, and Planning for Retirement
- Our overview of the FIRE (Financial Independence, Retire Early) Lifestyle
- Our calculator for comparing Traditional IRAs and Roth IRAs to help you decide which one to choose
- Our calculator for estimating how much your Traditional IRA or Roth IRA could be worth at retirement
And much more! We are always adding to our knowledge bank to better help you and answer your questions.
Do you feel more ready to take on some of these challenges to planning and saving for retirement? Make sure to reach out to us if you have any further questions – or if you’re ready to get started!