Over the years I’ve read a number of personal finance and investing books to mature my financial acumen. For today’s post I’ll collate what I think are three great ways to kill your retirement plan.
Retirement plan killer # 1 – always living with credit card debt
Unless you have a healthy and rising stream of cash flow (good on you by the way), I’m convinced consumer debt is a great way to kill your retirement plan. Consumer debt, such as credit card debt is a HUGE retirement plan killer; who on earth pays 18% interest for months on end for money they don’t have? It’s like the Grim Reaper is holding your retirement plan in his hand.
On a personal note, my wife and I avoid most consumer debt. We don’t have any credit card debt but we do have a bi-weekly car payment. This is not ideal but we’re working on it. This brings me to my next retirement killer point…
Retirement plan killer # 2 – always having a car payment
Again, unless you have a healthy and rising stream of cash flow, borrowing money all the time to pay for a depreciating asset is not a good idea. Let that concept sink in for a moment.
If you’re going to borrow money, buy assets that appreciate in value over time. Sure, buying a new car might make sense every 10+ years if you plan to keep the car for a long period of time especially at 0% financing rates however to continually buy and pay for new cars are a wealth destroyer. Or, maybe you just like servicing debt.
On a personal note, my wife and I have a car payment. Until a couple of years ago, we didn’t have a car payment for 7 years. Furthermore, I own a 14-year-old car. I will drive that old car for as long as it remains cost effective to do so. We should have our car payments on the newer car finished in 2 more years.
Retirement plan killer # 3 – failing to start good saving and investing habits early in life
I suppose you can teach an old dog new tricks but it takes a helluva lot more work and even still the discipline might not stick. Failing to save early in life, and often, is also a retirement plan killer in my opinion. You should know from reading other blogposts that time in the market is a considerable factor in wealth creation. If not, here’s a refresher:
Time on your side:
- If a 25-year-old started with $10,000 in the bank, and they invested on average $350 per month, with a 7% annual compounding rate of return, until age 65, they would have $1 million in the bank.
Fighting Father Time:
- With all things being equal, if a 45-year-old started with $10,000 in the bank, they would need to invest over $1,800 per month, with a 7% annual compound rate of return, until age 65, to reach the same value.
The math doesn’t lie and you can play with this calculator here. At 7%, your money doubles about every 10 years. The later you start saving, the more you’ll have to contribute to reach any end-goal.
On a personal note, my wife and I have been saving and investing together for over ten years now. We still have a bunch to learn, including all things taxation, but we’re getting there slowly. Our hope is to have the opportunity to retire at age 55. I guess that depends on how we avoid these retirement plan killers.
I think Preet Banerjee said it better than most: think of spending today (and not saving today) like borrowing from your future self. There are many ways to kill your retirement plan. I’ve provided my top-3 for today’s post.
What are other good ways to kill your retirement plan? Got something that should make it into my top-3?
I know some people who couldn’t imagine living without debt. They’re so in debt, they’ve even tapped into their life insurance policy! Preet Banerjee has it bang on – stop over-thinking your money and just start saving already.
Preet is genius really. Thanks for the comment Sean. I appreciate your insight.
Hi Mark, great post. I think loyalty program are a huge problem for credit card holders. They create this mentality that its okay to buy on credit because ‘we are getting something in return’.
The truth is these credit card companies have built the costs of their reward programs into our interest rates!! The costs aren’t coming out of their profits that’s for sure lol
Thanks Syed. I think credit cards can work for many people but the convenience definitely comes at a cost if you are overspending, killing your budget and retirement plan. I should probably own Visa or MasterCard stock 🙂
I’m glad I started investing in my retirement early. I was I think 22 when I started, and now I have several thousand dollars put away at 25. I love the tax benefits, too, so that has provided a nice incentive.
To start investing at such a young age is very good Daisy. Congrats to you. You’ll be laughing if you keep it up for another 25 years.
Sorry for the lack of posts. For some strange reason I couldn’t post on your site for the longest time. Weird!
Anyways, Debt is pretty much the nail in the coffin for any retirement plan. Having $10,000 or $30,000 or even over $50,000 in consumer debt is not normal. $50,000 in renos hey no problem but owing $50,000 because you bought useless junk is just plain stupid.
Good to hear from you Steve and sorry for the blog comments issue. I honestly don’t know what’s going on…..
I hope to be debt free in another 8 years. Hopefully 🙂
We try to avoid buying useless crap. It happens, we’re guilty of it, but getting better at avoiding it!