1. My house is my IRA; I don’t need to save for retirement.

Oh c’mon! Open a freakin’ newspaper. I told people this was nuts from 1994 to 2005, but now–finally!– most people get it. Sadly, there’s a few of you out there who think (or at least act) as though this is temporary correction and that housing prices will once again skyrocket annually. Sure they will. As soon as pets.com, etoys.com, and webvan shoot to the moon.

2. All those computer programs assume an 8% rate of return over the long-term for my retirement plan investments. That’s pathetic. When I get around to investing again, I’ll get at least double that (heck, I got 30% in 9 months back when I invested $5K in 1999!)

Anyone can earn huge returns in a bull market, but doing so doesn’t make you a better investor anymore than banking a three-pointer makes you a good outside shooter. In fact, if I lined up 100 people just like you, your average return would be . . . average! If you invest appropriately for the long term, that’s about 8% a year. Some years you will do much better. At other times, you will do far worse.

But here’s a fundamental question: why would you want to rely on doing much better than the market? Wouldn’t it be far better to have your “phenomenal” returns (I’ll dream with you for a moment), simply make you even more comfortable as opposed to needing spectacular performance just to barely make it? Do you really want your long-term financial security dependent on luck instead of solid planning?

3. I already save in my 401(k) plan up to the level my employer matches. That’s better than a lot of people.

True enough; it’s a great start. Eating your vegetables everyday is a great start too. But if you smoke a pack of cigarettes and haven’t worked out since the Regan administration, asparagus alone, my friend, a healthy specimen you do not make. Same thing with saving for retirement: contributing up to the match is a requirement, but it’s going to take more than that to achieve your retirement goals.

4. I have all these student loans. I’ll save when they’re paid off.

Sorry. I had them once myself, so I know your pain. Hopefully, many of these loans are at relatively low interest rates. And while your student loans represent one financial challenge, you may not allow them to overwhelm all of your other fiscal goals. Instead, you need to find a way to save for retirement at the same time that you pay down your debt, especially when that interest is relatively low. If that sounds impossible, read the Top 10 Saving Strategies.

5. I’m going to inherit a bunch of money one day. That’ll take care of me.

Don’t be so sure. You might, you might not. It depends. There’s a decent shot your folks and/or Uncle Herb might live a lot longer than your grandparents did. If they live into their nineties, how old will you be when you receive that inheritance? Past a point when you thought you’d be retiring, eh? How much money will be left by then? Not quite what you thought, either. Plus, what if they go into a nursing home, which can take the bulk of your expected inheritance? These scenarios happens everyday. Don’t count on others to fund your retirement. Pardon the pun, but that’s your job. Start now.

# # #

Two weeks from now, I’ll be delivering a free retirement planning presentation at the ING DIRECT café in Chicago. You can get more information and register by visiting the ING DIRECT site. If you don’t live near Chicago, tell a friend who does. Also, I’ll be in New York City, Philadelphia, Wilmington, DE and Los Angeles delivering the same presentation next month. Stay posted for details.

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2 Comments to “Five (Nonsensical) Reasons to Delay Saving for Retirement”

  1. Jen says:

    I see a lot of these from my friends. It can be difficult to know that I am going to have a much better retirement (unless they change their ways, of course). We are recently out of college, and my PF hobby has lead me to start saving, investing, and 401k/Roth… ing. I get frustrated that my friends are more interested in buying Victoria Secret, planning their weddings, and consuming, consuming, consuming.

  2. Michael says:

    Jen, your PF hobby will pay off in the long-term far more than your friends passionate consumption will help them live truly comfortably. Just make sure you are staying in balance (frugality is fine – but only to a point).

    I suspect you already know this, but living exclusively for tomorrow is also a dangerous approach. I don’t emphasize this when writing, because most people are hard-wired to spend, but for those who may overdo the saving thing, it’s a good reminder.

    Keep up the great work! I look forward to being on the same tropical island with our respective families during retirement one day . . .

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