Saving for retirement is job #1 for most people. You can never have too much money when you leave the workforce, yet putting money away for retirement seems to elude many people - but not everyone. There are a small percentage of people out there who take it to the other extreme. This video discusses who they are and if you are one of them.
Overview
After I graduated from business school, I went to see a financial advisor, and what I said to him was I want to put everything I have, every spare dollar into some form of a retirement account. And the best advice that anyone could get was given to me that day. This gentleman said, "Life is long, and you need to save as if you're walking a marathon, not running a sprint." Those words have stuck to me until this day and when I think about those words, I see a variety of different people that are obsessed with saving for retirement to their own detriment.
Let's get into it, but before we do, please make sure you click subscribe notifications so that you get alerted the next time I post a video. I post about twice a week. I have a question for you, when you think about retirement, are you thinking about escaping or transitioning? Escaping means that you're going to go full Marlon Brando and exit stage right. Transitioning means that you're going to continue to dabble in the moneymaking arena, whether it's through a part time job, a hobby that generates income, consulting, et cetera.
As you would expect, escaping means that you need to save more for retirement than transitioning. In fact, if you plan on generating $10,000 per year in part time income, the absence of that part time income means that you need to save approximately $250,000 more in your retirement accounts assuming that you spend approximately 4% per year using the 4% rule. We need this as part of the frame, but this isn't the big frame, this is just a data point. Once you know the answer to this question, everything I'm going to talk to you about next will make a lot more sense.
Signal number one is that you actually blow through your contribution limits. From time to time, you'll hear about people that over contribute to their retirement savings, their 401k, their IRA, et cetera. If you don't catch it, all sorts of bad things happen and depending on the type of retirement vehicle you use, the penalties differ, but a very common one is the 6% penalty. First, if you don't catch it, you will owe 6% per year on your excess contributions. This means that if you have a 10% return, it now becomes a 4% return. Now I don't have to tell you that there are much better places to put your money, even if you don't have the tax advantages if 60% of your returns are going to be taken away from you.
Signal number two is that you're missing other money goals, other money targets. You're not continuing your education, which would result in higher income. You're not paying off your mortgage, which would result in a safer retirement. You're not paying off your credit card, which is very bad altogether because you're paying somebody else 20%. This is, as they say, penny wise and pound foolish. It happens more often than you would think. People become caught up in getting every dollar into a savings vehicle without understanding the better use of that money.
Point number three is that it's causing health issues, mental or physical health issues. This point reminds me of the 1984 film A Christmas Carol, starring George C. Scott. George plays Ebeneezer Scrooge,...
Important Links:
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Free "Retirement Ready" Checklist:
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Federal Reserve Board Survey of Consumer Finances:
https://www.federalreserve.gov/econres/scfindex.htm
Social Security Administration Application for Benefits
https://secure.ssa.gov/iClaim/rib
Current Social Security Cost of Living Adjustment
https://www.ssa.gov/cola/
Social Security Payment Estimator
https://www.ssa.gov/benefits/retirement/estimator.html
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Disclaimer: this video is for educational and entertainment purposes only and is not meant to be a substitute for legal, accounting, tax, or professional advice. If you have any specific questions about any legal, accounting, tax or other professional service matter you should consult the appropriate professional services provider.
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