At VestCred, we’re driven by a single belief that everyone, no matter your background or economic circumstances, should have the same opportunity to retire with confidence. We’ve had a lot of conversations with folks that haven’t been focusing on retirement planning for all of the wrong reasons. These are the three lies we most often hear from people when it comes to retirement planning or building retirement savings:
1 – I can’t afford to save much, so retirement planning isn’t worth doing at all.
When you’re in your 20s and 30s, it’s hard to imagine that your retirement will come one day. It seems so far in the future that it becomes easy to put retirement planning off. Other day-to-day responsibilities start to take priority and a lot of people say, “I’ll start saving next year.” This thought process is the first and most common reason for not building retirement savings. We won’t be the first to debunk this false assumption, but we like to talk about this a bit differently.
Regardless of your circumstances at the start, a singular truth holds for most things you accomplish in life – it’s all about momentum. It’s the age-old fable of the tortoise and the hare.
Start with any amount – $2 per day, $10 per week. Whatever you can dedicate to get things going. Pay it to yourself first when your paycheck arrives. That’s important, but it’s more important is to be consistent with this effort. Don’t try to do too much. Overextending yourself can add stress that isn’t necessary.
It takes 8-10 weeks to establish a habit. That’s all we’re trying to do at this stage – train ourselves to deposit into our retirement savings consistently. Just like it’s another bill you’re paying every month. We recommend setting up a direct deposit to yourself. Multiple apps can help you do this, but make sure that you’re auto drafting a set amount into your retirement savings monthly. Just like other bills that come out of your account, you won’t notice the difference over time.
Consistency and momentum. That’s how we get to the goal.
Here’s where we almost always hear, “Dude, that’s all fine and dandy, but $10 here and there added to a retirement savings plan isn’t going to matter.” It will, and the return will be incredible. Along this journey, an economic function called compound interest will be your best friend. Here’s an example of the power of compound interest, based on historical averages:
Starting deposit: $100
Monthly deposit: $100
Annual compound interest rate: 7%
Years of investment: 35
WHAT! Yes, you turned $43,100 invested over 35 years into more than $178,000!
If you’d like to see for yourself, check out this compound interest calculator. With this tool, you can play with different downpayment amounts to see how much interest you can accrue.
There is no amount that’s too small. There’s only an unwillingness to be consistent and build momentum.
2 – Retirement planning is too complicated.
Dave, our Cofounder, is a 30-year veteran wealth and retirement planner. He’s a graduate of the University of California at Berkeley. His focus – as you might have guessed – was economics. Dave thrives deep inside the math. He’s blessed that way.
Fact – we’re not all like Dave Wasserman.
Retirement planning can be overwhelming. Reducing the complication is all about starting the conversation focused on the right topic — YOU. What really matters to you? What’s really important in your life?
Getting started is the hardest part. Most people know they should be saving for their retirement, but don’t know where to begin.
Take Brandon, for example, a single dad. He’s providing for his son with one-income, so money is always tight. He saves what he can, but can’t do much more. Brandon switched to a VestCred 7702, and now he’s projected to have 45% more after-tax retirement income for the same contribution he’s been making to his 401(k).
“Now, I have peace of mind that I’ll be okay after retirement. I won’t have to burden my son financially, and I’m excited about my future,” said Brandon.
At VestCred, we know there are a lot of folks out there like Brandon. Smart people who know they should be saving for retirement but are often unsure about the best option for their unique situation. The best part about our job is educating and empowering our clients, so that they can have a better future.
3 – I won’t need it.
We have an in-depth write up on this subject (point to the other article entitled ‘what will you spend in retirement’), so to debunk this third lie, people most often tell themselves about retirement planning we’ll stay out of the weeds this time.
Social Security may not be there at all for you and if it happens to still a solvent program, it may be a dramatically reduced benefit. So expect reduced benefits as a best case scenario. Add to that the fact that healthcare costs are going bonkers and you have a recipe for personal financial disaster in retirement if you haven’t been growing a retirement savings account.
There’s another hard truth to face – most retirees TODAY have higher expenses than they have retirement income. That’s only going to become a wider gap in the future as costs for daily needs like food and utilities rise.
“Equal opportunity for all” is part of the American Creed. Sadly, those with the most wealth seem to have more opportunities than most to build or extend their wealth. For decades, these folks have used the momentum inherited or self-manifested to augment retirement planning and maximize tax-free income. Fortunately, when properly informed, everyone can use the same section of the tax code to improve their retirement regardless of their job description or how much they make.