Avoid These 4 Things to Increase Retirement Income
By David Edmond
There is one rule for planning for your retirement - the earlier the better. Planning for your future is one thing you should never sideline. You have to get started today. Here are four things to avoid when planning for your retirement that will allow you to earn more income during retirement.
1. Ignoring inflation
Did you know over the last 30 years prices have more than doubled? This is a worrying trend that I think is not going away. Doubled inflation means you need twice the amount of money to buy a loaf of bread as you did back in 1985. Also, if your monthly living expenses where $2,000 in 1985, you would need $4,000 today just to get by. As you can see, inflation is just one thing you can’t afford to ignore when trying to increase your retirement savings. (For more, see: Retirement Planning: How Much Will I Need?)
If you look back at historical statistics, one notable thing you will see is that prices of goods and services in the U.S. are increasing by a rate of about 3% per annum which means the amount of money you have today will be worth half of what it is worth right now in a period of about 20 years. This explains why it is important for you to know and understand the inflation rate as it can help you in planning out your finances so you will have enough money to maintain the same standard of living you have today in 20 years.
2. Not Taking Control of Your Money
Although there are a lot of ways to determine how much you can afford to put aside for your retirement, the best way is to know and understand your current financial standing and use that as a guide to inform you on how much you should save. By being thorough in your planning process, you could find surplus income you are having each month that can be redirected towards your savings. If the surplus money is not enough, then consider taking full and strict control over your finances.
One way you could do that is by looking at your bank account and fees. For starters, you could take a careful look at your own savings accounts especially those you haven’t touched in a while. Normally, the interest on such accounts would be lower as it decreases with time. You could transfer that money into a tax advantaged retirement account whose money is invested in stocks to help you earn more. (For more, see: Retirement Savings: How Much Is Enough?)
3. Ignoring Stocks
Stocks are valuable if you want to secure your future after your working days are over. Most people are skeptical of stocks but investing in stocks is less risky than keeping your money in a bank where it is affected by inflation. And when saving for your retirement, it is important to avoid inflation. Stocks are an attractive investment option if you are saving towards your retirement because they outpace inflation.
4. Not Paying Down Credit Card Debt
Your credit card debt can be such a hamper to your ability to save for the future. When you carry the debt over into the future, your ability to pay for basic expenses can be hampered if you no longer have an income source. Most credit card debts have an interest rate of 18% and a minimum payment rate that is 4% or 5%.
This means if you have $8,000 in debt and pay the 4% rate, it will take you at least 10 years to pay off the debt. Factor in the interest and you will pay a total balance of $12,000. Be proactive and do everything you can to pay off your credit card debts.
The Bottom Line
It's never too early to start saving for retirement. Avoiding the four mistakes outlined above will help you earn more income during retirement. (For more from this author, see: 5 Ways to Increase Your Income in Retirement.)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.