How to kill your retirement plan in 3 easy steps

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?