3 retirement strategies that could work against you – The Fool Motley

When planning for retirement, you will probably develop a number of strategies in the hope of being able to live comfortably as a senior. But if you are not careful, your projects might be nothing more than a major collapse. Here are three common retirement strategies that do not always work so well in practice, so consider yourself warned.

1. Catch up later in life

Many workers are delaying their retirement savings between 20 and 30 or even 40 years, with the intention of catching up later in life if they are not struggling with loan repayments. 39, studies, childcare fees and other more immediate bills. The problem with this strategy, however, is twofold.

First, the longer you delay building your nest egg, the less time you give your money to grow. Second, if the circumstances are right for you, you may be forced to retire sooner than expected. This is the fate of no less than 60% of Americans, who leave the job market before being ready due to a loss of job, health problems or having to take care of their loved ones, according to Voya Financial.

Therefore, a better bet is to build a nest egg regularly over time, rather than waiting 50 years or more to start moving forward. The good news, however, is that if you finance an IRA or a 401 (k) over several decades, you can build a solid fortune with modest monthly contributions.

For example, reserving just $ 300 a month for 40 years will leave you with about $ 719,000 if your investments generate an average annual return of 7% during that time. This 7% return is a little below the stock market average. It is therefore certainly achievable over a period of 40 years.

2. Rely on social security for a substantial part of one's income

Many workers are neglecting their retirement savings because they are more likely to resort to social security. The problem, however, is that these benefits are by no means designed to support seniors on their own. At best, they will replace about 40% of your previous income if you earned an average salary, but most retirees need about double to cover their bills while still retaining money for modest luxury. like cable TV and entertainment. In addition, it is planned to reduce benefits in the future if the financial situation of social security does not improve. This income will replace an even smaller percentage of your previous income.

Rather than relying on social security for most (or even worse) of your retirement income, secure yourself some additional sources. Fund an IRA or 401 (k) during your working years or plan to work at one time or another during your golden years to earn some money. Otherwise, you could find yourself short of money and miserable.

3. Relocate somewhere cheaper

Many older people decide to pick up their children and settle when a lower cost of living calls them to other parts of the country. In theory, it is a wise choice because living in a place where rent is cheap, low or no local income tax, and low-cost amenities can expand a limited income. The problem with this strategy is that it may not run as smoothly as expected. For example, you may have difficulty selling your home for one reason or another, thereby frustrating this plan. You may also experience health problems as you get older, which may force you to stay in place to get closer to family members who can help you.

While there is nothing wrong with Planning To move to retirement, plan a backup plan to manage your income in case it is not good. For example, you may decide that if you can not move to a cheaper place, you will work 15 hours a week at retirement to make up for the monetary difference.

It is good to develop a retirement strategy rather than taking advantage of your golden years. Be careful with these specific tactics, because if they work sometimes, they can also leave you broke and unhappy at a time when you clearly deserve the opposite.