The reason that many Americans tend to struggle financial during retirement is because it has been an accepted idea that low wage earners will struggle to live financially secure, most Americans have never taken the time to calculate how much money they will need to save for retirement and most people fail to see the importance of contributing to their employers’ retirement plans even though they will spend nearly 20 years in retirement. (U.S. DOL n.d.)
The way to change the mindset that high wages are the highest priority is to, at an early age; emphasize the importance of spending money on items that are needs instead of wants. People who prioritize on needs such as food, housing and health develop the skill of controlled spending as opposed to those that buy on a whim or spending money frivolously. People that have adopted this foundational mind set have a healthy finance life and reap huge dividends later in life. As a former financial consultant I witnessed this first hand hand. A retired school teacher was struggling to deal with a loss in her investment account after the 2008 market drop. She lost over $250,000 at the age of 84 years old and was concerned about going broke. The irony of the situation was that she had over $800,000 in the same account after the loss. She had no bills other than food, utilities, medical and transportation. When I assured her that things were fine I asked her what she did to save the kind of money she had. She told me that she never increased her lifestyle after getting her teaching job and in fact took every raise and added it to her retirement account. She lived her live like she only earned a meager income, adjusted her budget and income to cover inflation and worked like money didn’t matter. She retired with $2,000,000 in her account. Putting money away for retirement is a habit we can all live with. Remember…Saving Matters!
- How much money is needed should be calculated. While working it is important to maintain a budget and stick to it. Budgeting that includes reasonable live expenses such as room; board and food are the first places to start. By selecting a home that costs no more than 30% of the take home pay, a person can then look at the remaining 66% for items such as food, clothing, saving and more. In 1901 households spend an average of 23.3% on housing according to the Bureau of Labor statistics. (Bureau of Labor Statistics: 1901)
A good rule of thumb is to choose a home that is not so large that is costs more for utilities and upkeep than necessary. There is no logical reason for a single person to live in a home with 3 bedrooms, 2 bathroom and potentially more than 1000 square feet. In fact, a person living alone in this type of home is spending money for luxuries as opposed to needs.
When we looked at the housing costs being no more than 33% of take home pay, it is important to be contributing to your employers retirement account before your take home pay is calculated. By putting the maximum amount of money possible in the retirement plan a person insures that they have funds started that will be there in later years. The example earlier illustrates this fact.
The reason that many Americans tend to struggle financially during retirement is because it has been an accepted idea that low wage earners will struggle to live financially secure, most Americans have never taken the time to calculate how much money they will need to save for retirement and most people fail to see the importance of contributing to their employers’ retirement plans even though they will spend nearly 20 years in retirement. The teacher did all of the right things. She established the mindset that living a lifestyle she could afford with her first job was sufficient. She prioritized what were needs as opposed to wants, did not live beyond her means, set back the money she received on every raise, adjusted her budget to account for changes in the cost of living and retired with a large fortune.
U.S. Dept of Labor (N.D.) http://www.dol.gov/ebsa/publications/10_ways_to_prepare.html
Bureau of Labor (1901) http://www.bls.gov/opub/uscs/1901.pdf