Planning for Retirement Requires Sacrifice

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It’s never too early to plan for your retirement, and sometimes that planning involves sacrifice. Sure, you can spend your money now and enjoy it, but is it really worth it if you’re destitute in the golden years of your life?

Most people who live to a ripe old age will need some sort of advanced care toward the end of their days on Earth. And that means you’ll have to have a nice chunk of change squirreled away for when you retire.

How much you’ll need to save toward retirement depends on Social Security’s status by the time you retire, the size of your retirement nest egg and the you’ll need during your golden years. As of right now, a $1.5 million nest egg plus Social Security benefits will keep us going for 20 years if we retire at the age of 65 and can live on $45,000 per year. This is a conservative estimate — we plan to have our home paid off by the time we retire. Sacrifice is part of the plan.

How to Reach Your Retirement Goals

Ditch the debt. Take it from someone who has had credit card debt hanging over her head at one time or another(although relatively minor) — all that extra money you’re throwing at your debt could be padding your retirement accounts. Instead of making a $500-$1000 debt payment every month, imagine how good it will feel to put all that month toward savings every month.

Don’t lose out on employer match. When I found out Mr. Saver wasn’t taking full advantage of his employer’s 401(k) match (they provide a 50% match of 401(k) contributions, up to 6% of his salary), we upped his contribution from 4% to 6%. Eventually, I’d like to put more toward the 401(k), but at least we’re not “losing free money” now.

Increase your contributions when you can. If you find you have “extra” money after paying your monthly bills and expenses, it’s probably time to up your retirement game. Increase your 401(k) paycheck deductions and/or funnel that extra cash into an IRA.

Forgo fancy, annual vacations. Instead of spending $2,000 to $3,000 on a week’s vacation to a far-flung locale, that money is better “spent” in a retirement account, such as a Roth IRA or 401(k). If you really need to get away, look at closer-to-home options. Perhaps a few days at a local bed-and-breakfast will provide enough relaxation.

Don’t worry about the Joneses. No, you really don’t have to get a new car every four years, own the latest iPhone or buy designer purses and shoes. Don’t fall into the trap of keeping up with the ‘latest trends’ — it will only cost you valuable retirement funds down the line. I can honestly say I’ve never owned a smartphone and don’t feel that I’m missing out. Neither do I have an iPad, which seemed to be this Christmas’ most-received gift among friends and acquaintances.

Work longer than you want. Nowadays, many are working well into their 60s (and beyond) in order to ensure their financial security. Most aren’t eligible for Social Security until the age of 62 and Medicare/Medicaid benefits at 65, while full Social Security benefits aren’t realized until the age of 67. For those of us who won’t reach that age for another few decades, be forewarned that the “retirement age” for these federally-sponsored benefits will likely continue to rise. That means we might not become eligible for these benefit programs until the age of 70 — or beyond.

I practice what I preach. We don’t buy the latest gadgets, and now that Baby Saver is on her way, who knows when our next vacation will be — even a weekend getaway probably isn’t in our future for a long time. I’d rather save our money in hopes of a safe and secure retirement than fritter it away.

But most importantly, don’t touch your retirement nest egg! Sure, you can borrow against your 401(k) and other savings accounts, but I don’t advocate it because:

1) There’s usually a penalty (sometimes 10%!) attached to the withdrawal, and

2) Will you really pay it back?

8 comments to Planning for Retirement Requires Sacrifice

  • I completely agree about the sacrifice that is needed to ensure you are comfortable during retirement age.

    I was not as fortunate as some at having an employer who contributed since I worked for a start-up. It is just in the last 3 years my employer contributed.

    I am now a contractor and am taking my added salary and putting it toward my benefits. No matching though. One of my criteria for permanent employment is the employer offers matching. It’s like free money.

  • Hi Nicole–I think you’re hitting on a major point with getting rid of debt. A lot of retirees are now carrying debt into retirement and it’s having a negative impact. Paying it off is a way of increasing cash flow. Lowering living expenses is a companion strategy, especially if retirement assets are insuficient.

    One strategy that can help–at least for those in their 20s and 30s is to front load retirement savings. The more you have saved early, the longer compounding has to do it’s job. You can accumulate a much larger fund that way with far less effort, especially during those times in life that get kind of challenging and might prevent any retirement funding at all.

  • I’m working on most of these areas – very few big vacations and all are on the cheap, employer match when offered, Joneses, what Joneses? and so on. My only caveat is that I hope to be able to work for motivations other than money sooner rather than later, but hopefully my savings will be able to support that.

  • We can get anything we want but not everything we want. You could have a vacation by not having children or not saving as much for retirement or not living in Jersey but those are more important than the vacation. We need to pick the most important things and sacrifice the least important.

  • I think if you plan it, you may be able to have your cake and eat it too. We sock away at least 30% of our take home pay to retirement, but we also budget for the $2000 vacation every year. It is possible if you make both of those high priority and forego other stuff instead. 🙂

    • Nicole

      @Crystal: 30%! Amazing! I wish we could do that, but we chose to purchase a home in our very expensive metro area, where our families are. I realize this was our choice, of course. We don’t spend much money on other things, so there’s not a ton of things to forgo, although we could go super-frugal. Everyone approaches their finances differently!

  • You really do have to work longer than you want these days. And, Medicare and Medicaid don’t cover everything so nearly everyone has to get supplemental insurance and that has to be covered by something (i.e. a job) so people are working longer. I hope that we can figure out something that will lead to change in this area because that seems like a quality of life crisis.

  • Hi Nicole,

    I completely agree with you that planning for retirement requires sacrifice. We definitely need to plan our retirement today and work hard towards it. However, the way I plan to retire seems a little different from yours. I plan to not rely on a regular income but leverage on investments. Thank you for sharing.