5 Retirement Savings Thought Traps (and How to Dodge Them)

When do you plan to retire? 

No matter how many years until you have to dip into your own savings, it's still important to have a plan.  

The National Retirement Risk Index (NRRI) measures the percentage of working-age households that may not be able to someday meet their preretirement standard of living. The NRRI shows that 50% of households may not have enough money to maintain their living standards in retirement. The NRRI concluded that saving more and working longer may substantially change this trajectory.

A lot of factors play into why people don't save enough for retirement, but one of the things you can do involves changing your thinking. Let's go over some toxic retirement savings thoughts you might have and how to eradicate them.

Trap 1: "I've got forever to save."

Actually, time is exactly what you do need on your side when you save for retirement. Unfortunately, when you think you'll "get around to it" or "you'll start someday," that valuable time goes by the wayside. 

Can you guess the single biggest financial regret of Americans? According to a Bankrate survey, they highly regretted waiting too long to start saving for retirement. The survey reported that respondents 50 and older expressed this more readily than younger respondents.

Don’t fall into the trap of thinking you'll have more money and more flexibility to save for retirement "next year" or "in five years." You'll have expenses at every turn — the down payment for a new house, daycare expenses, saving for college. The expenses continue to pile up and every year you delay your retirement means you'll risk not compounding on your savings.

The fact of the matter is that the best time to save for retirement is when you were 16 years old and started your lawn care business. 

Trap 2: "If I save just enough to get the company match, I'll be fine."

You might not be "fine." You might need to save more — a lot more.

True, it's better than nothing. In fact, let's do some quick math to illustrate what this could look like. Let's say you make $50,000 per year and your employer's match totals 5% per year. This means you'd save $2,500 in a year and your company would put in another $2,000, which would total $4,500 per year.

You'd have about $26,200 over the course of 30 years with a 6% annual return. Now, let's say your salary increased at 2% per year. Your account would be worth close to $70,000 in 30 years. It would go up to just over $200,000 in three decades. 

But… $200,000 might not be (and probably isn't) enough.

Let's say that instead, you invest 15% of your $50,000 salary, or $625 per month. Just to keep the calculation simple, let's say you never got another salary increase. If you started at age 22 and saved $625 per month, you'd have about $1.7 million, assuming a 6% return.

In other words, save more than just the employee match.

Trap 3: "It's too hard to invest."

Many people report that they struggle to save and can't even come up with $1,000 in savings in case of an emergency. 

However, when you put a mental block in place that it's too hard to save, you may always believe that only "other people" get rich investing or "other people" can save — but not you. 

These mental blocks are powerful, and they can become a self-fulfilling prophecy. 

Visit your company's human resources office and ask for an appointment with a representative from the company who manages your retirement account. They can make it much easier to help you set up your retirement fund and even help you arrange it so you don't even miss the money when it's taken out of your paycheck.

Don't fall for this ever-present mental block. Investing can become second nature, if only you take action and remove the fear. Sometimes having a financial advisor to guide you can change everything. 

Trap 4: "I'll never accrue enough money to make a difference."

Let's take a look at how much you'd need to invest monthly to build a $1 million nest egg by age 65. Assuming a 7% annual rate of return, you'd need to save:

• $381 per month start at age 25
• $820 per month if you start at age 35
• $1,920 per month if you start at age 45 
• $5,778 per month if you start at age 55

Admittedly, you'll need to save a lot more starting at age 55, but consider how saving in a pretax retirement plan may help you feel the bite less. Let's say you elect to save $500 per month. Because money gets taken out of your paycheck before taxes, you will not see $500 less in your paycheck. 

However, do consider whether a pretax IRA or 401(k) makes more sense for you compared to a Roth 401(k) or IRA. You can consult a financial advisor to find out which makes sense for your financial situation. (You can elect to do a combination of both as well.)

Trap 5: "I can make up a savings shortfall by retiring later or working part-time in retirement."

You may not actually be able to do that. 

Many workers must stop working earlier than they had planned due to health reasons, caring for a spouse or family member or due to other reasons. You don't know what the status of your health or family needs will look like, so planning to work at an advanced age isn't always feasible.

In addition, it's important to remember that unemployed older adults traditionally get hired more slowly, particularly during a recession. Older workers’ unemployment rate remains below that of their younger counterparts, according to the AARP Public Policy Institute. 

Avoid Retirement Thought Traps

Traps like "I can't…" or "It's too hard…" can signal the death knell for your portfolio. You can face a considerable savings shortfall if you let these "thought traps" take over.

Most of the time, a candid conversation with a financial advisor can help you realize that you can't afford not to take action on your retirement savings. The earlier, the better, yes — but saving now versus later will pay dividends down the road. (Literally.)