The Retirement Wager: Hidden Issues by Delaying Your Retirement ContributionsSubmitted by Castlebar Asset Management on April 13th, 2016
In our 30’s and 40’s we typically have a lot of financial commitments. Mortgage, maybe student loans, trying to save for your child’s college, save for your retirement and the list goes on and on. We all know we should be contributing more to our retirement accounts but all of the expenses above plus a dozen other items are preventing us from contributing more.
Most people in their 30’s and 40’s plan to play catch up on their retirement contributions. The expectation is that it will be easier in the future and we are wagering that we’ll be in a spot in a few years (typically in our 50’s or 60’s) to supersize our retirement contribution. Understanding the lessons of high school algebra and time value of money aside, we are trying to make due now. According to a US Senate report over half of American’s over the age of 30 are heading in a direction that will leave them unprepared for retirement.
The Retirement Wager we are making is we will be in a position to play catch up down the road. Unfortunately, there are a number of headwinds that are working against us. A common misconception is we will continue to see steady earnings growth throughout our careers. We figure we’ll be able to earn our way to a better contribution. The evidence shows this won’t hold true for most of us. We will usually see our earnings peak during our early 50’s. That leaves us at least a decade of flat or declining earnings to deal with along with retirement deficits.
As our careers advance and our incomes grow it usually coincides with an expansion of our lifestyle. We earn more and we buy more expensive things. The items that use to be luxuries slowly become necessities. This is called lifestyle creep and will have a hidden impact on our ability to save for retirement. Because so many of these expenses slowly work their way into our life it is hard to recognize their true effect. At the moment we plan to start playing “catch up” it may be harder than we think unless we want to cut back on our spending.
Once your children are out of college, you are probably thinking this will finally be your chance to take care of all those financial items that have been pushed down on the priority list. Almost a quarter of Americans age 50 to 70 say their retirement is off track because they have had to financially support a grown child. This has been a growing trend since the great recession. Being the Bank of Mom and Dad may prevent you from playing catch up!
Wagering that you’ll make up for past mistakes with your retirement savings will leave you needing cooperation from the markets. If you receive average returns during your catch up phase things will work out but what if that does not happen? Bear markets or a period of prolonged lackluster performance could cause you to delay or not see your retirement plans work out.
The Retirement Wager is a bet many of us are making. We are hoping for a best case scenario but with a few minor changes in your 30s and 40s, you will be able to turn the odds in your favor.
If you are interested in turning the odds in your favor and making changes contact me today. I can be reached at 913-660-0708 or by email. Castlebar Asset Management works with indivduals and families in their 30's & 40's. For more stories like this one, please sign up for our monthly newsletter here. Follow me on Twitter @CastlebarAM.
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.