We hear often about retirement planning and many of us have a basic understanding of retirement planning, but most just don’t seem to care about retirement. So rather than the traditional “how to retire” tips we’ll give 6 tips on how to make sure you can’t retire.
1. Spend More Than You Earn
You will always hear “Spend less than what you earn“, “Live within your means”. Setting up a budget will ensure that you have enough money left at the end of the month to save and that you will not need to borrow money on credit to pay for living expenses. When you spend more than you earn, mainly to keep up with society, you will have to borrow from somewhere to pay off your obligations, thereby going in debt; and the longer you continue this strategy the more debt you will accumulate. Just as compounding works for you, it can also work against you.
Now what better way to mess up retirement plans than accumulating large amounts of debt? This will take you years to pay off and ensure your retirement is delayed, perfect!
The purposes of these plans are to fund your retirement; you contribute to these plans, get the tax deductions and enjoy tax deferred growth. You can contribute on monthly bases (dollar cost averaging), or lump sums. Either way the earlier you contribute the more you can benefit from compounding.
I say forget RRSP’s and 401K’s you do not need them, they are overrated. If you decide to do the “foolish” thing and contribute than start in your late 40’s or 50’s — this will ensure that you do not have enough funds for retirement and are forced to work; just like planned.
3. Forget the Emergency Fund
Establishing an emergency fund with 3-6 months of living expenses is recommended in order to provide some buffer in hard financial times, such as illness or job loss. Having an emergency fund will help you get through rough times without touching your long term savings and/or getting into debt; this fund usually sits in a high interest savings account that is very accessible.
My opinion; forget about Emergency Funds! Since you will be spending more than you earn you won’t have any savings, and if an emergency arises just borrow some more. This will be perfect, as it will delay retirement even longer, emergency funds are “useless” because emergencies do not happen to you.
4. Have a Long Amortization On Your Mortgage
Amortization is the number of years your mortgage is spread out over. The shorter your amortization period the lower your overall interest cost will be; however your monthly payments will be higher. It is always recommended to pay off your mortgage as soon as possible and to make extra payments when you can. Paying your mortgage biweekly can reduce your amortization period and save you thousands of dollars in interest payments.
Sounds great, but the problem is that when you do this you’ll be debt free sooner and be able to retire earlier, that is not our goal; so why do it? I recommend you take as long as you can with paying your mortgage and stick with the minimum payments. If you have extra cash than just spend it on something you like and forget about paying down mortgage; after all you want to delay retirement as long as possible.
5. Stay Away From Your Employer’s Pension Plan
Often employers provide employees with some type of pension plan where either the company contributes to your plan or you both can contribute to the plan. Over time this will be a nice addition to your retirement fund and it’s free money from your employer, when your employer gives you free money you should take it. Not in this case!
I highly recommend not signing up for your employers’ pension plan, stay away from this otherwise your goal of delayed retirement can fall apart.
6. Forget Long Term Buy and Hold Investing
Investing for the long term in quality companies is a good strategy to building wealth. There are bear markets and bull markets, if you try to time the market chances are that you will lose, so a buy and hold strategy is a good way of building a retirement fund, which makes it bad for you.
Why worry about the long term if you can’t enjoy things today? I suggest you forget investing, it’s too risky people lose money in it all the time. Well, since you will be spending more than you earn you won’t have any money to invest anyways. But if you do, then just play the markets try to make a quick buck so that you can go and spend it. Not investing for the long term is a vital part of this plan.
Any other tips to ensure you are unable to retire?