Forget freedom at 55 – many Americans don’t expect financial freedom at age 55. any age.
An Axios/Ipsos survey found that 1 in 5 Americans don’t think they will ever retire – and a whopping 70% of that group say it’s because they simply can’t (or won’t) afford it.
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Additionally, an AARP survey found that of U.S. adults over the age of 50 who have not yet retired, 1 in 5 do not have retirement savings and 37% are worried about covering basic expenses, such as food and housing, when they retire.
While saving for retirement can certainly be challenging at times, a few bad habits could be putting all your retirement dreams at risk—but there’s still time to course correct.
1. You are spending more than you earn
About two-thirds of Americans (65%) live paycheck to paycheck, according to 2024 Your Money International Financial Security Survey from CNBC and SurveyMonkey. Respondents cited a lack of savings, economy-wide instability and rising interest rates as some of their financial stressors.
At the same time, many Americans spend more than they earn, live on credit, or indulge in a lifestyle they can’t really afford.
Tracking your spending for a few months can shed some light on where your money is going so you can get back on track. Consider making a budget this works for you.
In some cases, this may mean reducing unnecessary purchases. This doesn’t mean you have to start buying your clothes at a thrift store — instead, it might mean buying fewer clothes overall or setting an annual clothing budget to avoid impulse purchases.
However, if you are living well beyond your means, this may require a much more drastic lifestyle change, such as finding a cheaper place to live and considering additional sources of income, such as a personal projectto help offset costs.
2. Debt is weighing you down
Not all debt is bad. In fact, debt can help you build credit. But making just the minimum payment on credit cards and high-interest loans can leave you in a debilitating financial situation.
By paying the minimum amount each month, you essentially only pay the interest, not the principal. So, that pair of shoes you put on your credit card? You could be paying for this years if you are only making minimum payments.
Paying off debt can seem daunting – and it requires a big commitment. You may want to consider debt consolidation or negotiate a better rate with your creditors.
Ultimately, though, you want to get rid of that debt. Some strategies include snowball method (pay off your smallest debt first, which keeps you motivated as you work your way up to your biggest debt) or the avalanche methodwhere you pay off the debt with the highest interest rate first (and get the worst out of the way).
If it seems overwhelming, it may be worth talking to a personal finance professional to help you sort out your options.
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3. You depend on Social Security to fund your golden years
If you are planning to trust your Social Security benefit to pay your bills in retirement, then you might be in for a rude awakening—although you’re not alone.
According to a recent Gallup Poll35% of unretired adults expect Social Security to be an important source of their income in their retirement years.
However, in most cases, your benefit won’t be enough to cover your expenses during your golden years – and it was never designed to do so.
Social Security is designed to replace approximately 40% of a worker’s pre-retirement income, according to the Social Security Administration. You will need to supplement this with other sources of retirement income.
4. You’re not saving enough (or any) money
Saving money isn’t easy when you have a lot of expenses like your mortgage, car payments, student loans, and a constant pile of monthly bills.
It may mean a bit of sacrifice now, but chances are, if you cut out some indulgences — say, eating out once a month instead of several times a week — the money you can set aside may be easier to come by than you think. .
Although you might want to have a emergency fund easily accessible (say, in a high-interest savings account), you can funnel the rest into investments, like a individual retirement account (IRA) or sponsored by the employer 401(k).
The sooner you start, the better, as you will benefit from the power of compositionwhere you earn investment returns and interest.
5. You have unrealistic expectations
If you think you need to be a multimillionaire to retire, you may never be able to stop working – because you’ll never be satisfied with having enough money.
Your investments, where you live, and how healthy you are will all be factors that determine how much you’ll need to live comfortably in retirement. Therefore, there is no “magic number” that works for everyone.
Doing the math – maybe with a financial advisor – can help you set realistic expectations so you can achieve your retirement dreams.
You don’t want to end up working in retirement because to have for. However, some people never retire (or switch to part-time work) because they genuinely love what they do. There’s no hard and fast rule that says you have to retire at a certain age, so do whatever feels right for you.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
