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3 Worst Retirement Plans

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3 worst retirement plans

Thumb down for these plans.

The following is a guest post from Wayne at Young Family Finance. He writes to help young families with financial challenges, like choosing between daycare and stay at home parenting.

The very fact that you are reading this post suggests that you are ahead of the game. Most individuals or families fail to do any adequate planning for retirement. Unless you are being forced to read this, you are probably thinking about your own retirement.

Insufficient retirement planning is evident not only in the lack of savings of individuals approaching retirement age, but also in the lack of knowledge about fundamentals of finances like a Roth IRA or paying your bills on time. While I could detail my family’s retirement plan for you (yes, I do have one even though I am in my 20’s), sometimes it is better to learn from other people’s mistakes. Instead of offering you advice on what you SHOULD do to prepare, I think it will perform a better service to show you what you should NOT be doing.

Horrible Retirement Plans

1. Procrastination: Procrastinating is not just something that college students do. In fact, history shows that most people fail to start saving for their retirement at a young age. If retirement is 40 years away, why would someone need to start saving now, right? Well, that is the mentality that contributes to this horrible method of retirement planning at least. What young people fail to understand is that with compound interest, someone who starts saving $4,800 per year at age 20 as opposed to starting at age 30, (assuming an 8% annual return) will have over $800,000 more when they retire at age 60. If you are putting off your savings for retirement, you are giving up a lot of money.

2. Life Insurance: Prolonging your retirement planning is all too common of a mistake. Have you ever heard of someone waiting for their parents to die so they can receive an inheritance. While you would think that this is only in really wealthy families or Hollywood, this isn’t the case. Fighting among siblings for an inheritance seems to be increasingly popular in the middle class. Believe it or not, some children are hoping their parents don’t live too long so that they can supplement their retirement income with this money. Before you are too quick to judge, think of how much extra financial security you would have if your parents passed away and left you with a pretty penny. If this is your plan for retirement, you might want to consider two things: 1) many people are outliving their savings so you shouldn’t depend on this money and 2) this takes the responsibility away from you. Retirement planning is not intended to find the easiest way out, but is about discipline and delayed gratification.

3. Government Aid: Similar to number 2, many families are banking (pun intended) on social security. While I believe social security will be around for a long time and isn’t going anywhere anytime soon, this should not be mistaken for a proper retirement plan. Depending on this as your only income in retirement will force you to either live with your children or return to the workforce in order to cover all of your bills. Instead of depending entirely on social security, why not use it as a supplemental income or even better, a safety net? I guarantee that you won’t regret being over-prepared for retirement.

Hopefully you are not following any of these approaches as you prepare for your retirement. Following these plans will not lead to success. It will most likely result in financial disaster. Instead, take action now and be more aggressive in your retirement savings.

What are some bad models of retirement that you have seen?

photo credit: flickr – striatic

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{ 51 comments… add one }
  • My University Money January 11, 2012, 5:55 am

    Depending on your government and parents eh? Mom, Dad, and “Big Brother”? That kind of makes me queesy. This is why democracies might one day be in trouble, people who make irrational and illogical decisions get the same vote I do, and they will vote for the government to give them my tax money to fund their retirement because they couldn’t make the right choices for themselves. I become more and more libertarian everyday.

    • cashflowmantra January 11, 2012, 6:31 am

      Maybe you out to take a test in order to be able to vote, much like driving. It could be relatively simple but test on some history as well as candidate stances on the issues. Would make for an interesting election, don’t you think?

      • cashflowmantra January 11, 2012, 6:32 am

        Oops…”ought to”

      • My University Money January 11, 2012, 3:07 pm

        As a social studies teacher I have pitched this idea many many times. Unfortunately people think it is unconstitutional. I think there have to be a higher percentage of idiots alive now than ever before due to all our safety nets and this is the end result.

  • Roshawn @ Watson Inc January 11, 2012, 5:58 am

    When I read the article title, my first impression was “what is this article about?” However, these are all pretty foul choices, so I agree with you. The difference between starting early versus late in substantial, depending solely on SS is particularly troubling, especially since politicians can’t seem to leave that money alone, and waiting for someone to die for your retirement is downright morbid! Being responsible is infinitely less stressful and is what good conscientious people do.

    • Wayne @ Young Family Finance January 11, 2012, 8:14 am

      I agree. I wouldn’t have thought someone could wait for an inheritance until I met distant relatives of my wife. It’s just crazy. I had to work it into a post somewhere.

      • retirebyforty January 11, 2012, 8:58 am

        That’s pretty sad. I guess waiting for an inheritance will work if your parents are very rich. Regular people spend all their money on health care and other regular bills. I am not expecting any inheritance and I’ll tell my kid the same.

  • Barb Friedberg January 11, 2012, 6:06 am

    Start saving and investing NOW. Wealth compounds and time is the best asset in growing your wealth. Your article is spot on!

    • Wayne @ Young Family Finance January 11, 2012, 8:15 am

      Thanks Barb! I definitely see the advantage of starting as early as possible.

      • retirebyforty January 11, 2012, 8:59 am

        Starting early and continued contribution is the key to retirement saving. The stock market is not helping very much over the last few years.

  • Jeffrey January 11, 2012, 6:48 am

    I’ve heard people mention depending on their children to pay for at least part of their retirement. This seems dicey at best, and I can’t imagine most children being pleased to do this. I can’t imagine it in my case.

    • Wayne @ Young Family Finance January 11, 2012, 8:16 am

      I agree – my wife and I often joke that we will have kids just so they can take care of us when we are old (we’re currently planning on no kids).

    • retirebyforty January 11, 2012, 9:00 am

      I think children helping out is a valid option. I’m from Asia though and we have different rules when it comes to our parents. My parents can move in with us anytime and we will help as much as we can.

  • Miss T @ Prairie Eco-Thrifter January 11, 2012, 7:27 am

    I agree with you about life insurance. I know so many people who just say’ oh well, when I die it will be paid for.” This is such a bad attitude and a waste of money. If you really want to be responsible you have term life insurance plans that you have only until you have enough assets to override them. This is our plan.

    • Wayne @ Young Family Finance January 11, 2012, 8:16 am

      It is great to be prepared – as long as it doesn’t lead to a family feud. ๐Ÿ™‚

    • retirebyforty January 11, 2012, 9:02 am

      I think life insurance is essential to replace your future income. Now that we have a kid, I pay much more attention to life insurance and want to make sure my family will be taken care of if something went wrong.

  • Sustainable PF January 11, 2012, 8:25 am

    Surprised it hasn’t been mention as so many people think it might help: the lottery.
    Good luck if you are counting on a lottery win to fund retirement!

    • retirebyforty January 11, 2012, 9:03 am

      I buy a lotto once in a while, but I’m not counting on it for retirement. The chances are too low. ๐Ÿ™‚

      • Wayne @ Young Family Finance January 11, 2012, 1:40 pm

        ahh.. Great idea – too bad I didn’t think of that when I was writing this article. ๐Ÿ™‚

  • Christa January 11, 2012, 11:10 am

    It amazes me that people hope to gain form their loss when a loved one dies. Also, planning a retirement around the insecure timing of the loss is irresponsible — who knows how long someone would have to work while they waited for a loved one to “meet their maker”.

  • Andy Hough January 11, 2012, 11:57 am

    The third option is probably ok for people who are retiring right now depending on their circumstances. I’m hoping I will have SS to supplement my retirement income but I don’t want to be dependent on it. I won’t be depending on life insurance either.

    • retirebyforty January 11, 2012, 1:09 pm

      I think the SS payment will still be there in 30 years when we retire, but I definitely won’t be depending on it. The payment will probably be less than what is paying out now. Maybe we’ll just use that for our travel fund. ๐Ÿ™‚

    • Wayne @ Young Family Finance January 11, 2012, 1:41 pm

      That’s a great point. Yes, I hope it is around in 35 years or so when I can start withdrawing it – I imagine it will be much less like Joe said.

  • The Happy Homeowner January 11, 2012, 2:15 pm

    Great post; those three items are all hallmarks of the ‘head in the sand’ approach to personal finance. It doesn’t work with budgeting and it certainly won’t work with retirement!

  • Aloysa January 11, 2012, 2:50 pm

    When I moved to the US someone very smart told me that I need to start saving for my retirement as soon as I get a job. I did not understand it then as back home we rely on the government to pay a pension upon retirement. I am glad I listened though. ๐Ÿ™‚

    • retirebyforty January 12, 2012, 9:00 am

      Are they still paying pension back home? Can you go back and receive some pension when you retire? ๐Ÿ™‚

  • Darwin's Money January 11, 2012, 5:15 pm

    Those are all very good “bad” ideas LOL. I DO know people who are banking on an inheritance – actually TALKING ABOUT WHAT THEY’RE USING THE MONEY FOR! It’s crazy. Not only crass, but irresponsible.

    • Wayne @ Young Family Finance January 12, 2012, 12:35 pm

      I’m glad I’m not the only one that knows these people…

  • Very good points! Some people will get a pension, but counting on that pension to be there by the time you retire is not a good idea. A pension fund can go broke if its investments don’t do well. In a bad economy pension funds are at risk.

    • Shaun @ Smart Family Finance January 12, 2012, 8:56 pm

      Great point on the pension! There is a little bit of protection, but a pension is only as healthy as the company funding it.

  • krantcents January 11, 2012, 5:44 pm

    Most of the people I know personally have done many of the right things. They have done some stupid things along the way, but they put enough away for retirement. In fact many retired early. I try to surround myself with people who are smarter and more successful than myself. I can learn more from them.

    • retirebyforty January 12, 2012, 9:01 am

      That’s a great way to approach life and investment Larry.

  • Invest It Wisely January 11, 2012, 5:51 pm

    Fun post, haha! I think counting on even 8% is too optimistic and one needs to be more aggressive with their savings and plans for the present.

  • SB @ One Cent At A Time January 11, 2012, 6:38 pm

    hey I am counting on moving to the country I came from should there be any financial trouble. Cost of living there is lower. We can consider that point too here, isn’t it?

    • retirebyforty January 11, 2012, 8:14 pm

      Yeah, that is a good option for me as well. Thailand has public healthcare for everyone and if you are rich, you can buy top of the line healthcare and recovery rooms. Public healthcare has long wait, but for non emergency problems, they do a pretty good job.

  • 101 Centavos January 12, 2012, 4:19 am

    I personally know of a person that was counting on getting a large inheritance. The parent passed away, and left a good chunk (not all) of the inheritance to their church. Certainly he ended up with LOT less than he anticipated. Apart from the creepiness of anticipating a relative’s death, not a good idea.

    • retirebyforty January 12, 2012, 9:02 am

      Inheritance should be a bonus and I don’t count on it at all. Actually, I know my parents aren’t going to leave us much. ๐Ÿ™‚
      They are not wealthy.

    • Wayne @ Young Family Finance January 12, 2012, 12:36 pm

      Agreed. And it definitely is a little creepy.

  • Little House January 12, 2012, 7:13 am

    I’d also add, No Plan at All! I’m guilty of procrastination but have a bit of a plan in place. I’m not entirely banking on my pension, but I am factoring it into the equation.

    • retirebyforty January 12, 2012, 9:04 am

      I think the public pension will definitely get some kind of reform in the future. Too many people are against it.

  • AverageJoe January 12, 2012, 8:40 am

    Well, you just ruined my three plans….I guess I’ll have to start actually planning for real. What a spoiler you are, Wayne!

    Good post. Thanks.

    • Wayne @ Young Family Finance January 12, 2012, 12:36 pm

      hahaha. I am happy to have helped you out. ๐Ÿ˜‰ Thanks.

  • Squirrelers January 12, 2012, 11:58 am

    The Ostrich approach, waiting for someone else to bail you out…that’s the worst. Best for each of us to focus on individual accountability, and realize that the one person who ultimately has your back financially is yourself.

    • Wayne @ Young Family Finance January 12, 2012, 12:37 pm

      Couldn’t have said it better myself. Thanks Squirrelers.

  • Dan January 12, 2012, 1:34 pm

    Bad models? The lottery!

  • MyMoneyDesign January 12, 2012, 7:04 pm

    When I first saw the headline for No. 2 Life insurance, I thought you were going to discuss โ€œlife insurance policiesโ€ rather than inheritance. Both are bad ideas. Since you already talked about inheritance, Iโ€™ll talk about life insurance policies.

    Iโ€™m amazed by how many financial advice books there are out there that boast what great investments whole life / variable life policies are. Then you turn the book over and read that the author was a former life insurance salesman. In general, most life insurance policies (even though they are promoted this way) are bad investments. The fees are beyond anything youโ€™d pay with an IRA or retirement account. Iโ€™d like to add to your list that all life insurance policies beyond Term are a terrible retirement plan.

  • Weslie March 8, 2012, 11:18 am

    Thinking about life insurance and donโ€™t know where to start? Try IntelliQuote. I work with them and you can get free quotes on rates from several different providers without any pressure to buy. Want to talk to a human? They have agents available to help find the policy that is right for you. Not ready? No pressure. But at least itโ€™s a place to start.

  • Culinary recipes March 12, 2012, 2:43 am

    It’s about worst retirement plans but I propose you a good plan – become a chef.

  • Stephanie Moore August 3, 2012, 11:57 pm

    I always knew that my parents will leave something for us when they’re gone, so basically I’m depending on inheritance.
    It’s a good thing that I’ve read your blog, it made me realized some points in life.

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