3 Habits That Hurt Your Retirement Savings

Saving for retirement can feel like an uphill battle, especially if you don't have a ton of extra cash lying around to invest. It's also easy to put off saving for another day, thinking you have plenty of time to get started before retirement.

However, thinking like that can seriously hurt your nest egg, whether you realize it or not. In fact, nearly half (46%) of baby boomers don't have anything saved for retirement, according to a study from the Insured Retirement Institute, and only 23% believe they have enough saved to last through their golden years.

Something that may not seem like a big deal now can ultimately cost you thousands (if not hundreds of thousands) of dollars in the long run. Here are a few bad habits to nip in the bud before they become major issues.

1. You don't maintain a budget

Budgeting may not be the most exciting thing in the world, but it's the only way to stay on top of your finances and see how much you really spend each month. If you don't keep a budget, it's hard to know how much you'll need to have saved for retirement.

Of course, a simple budget won't answer all of your retirement questions, but it's a crucial first step. Once you know how much you're spending now, it will give you a better idea of how much you'll be spending during retirement.

Creating a budget will also help you gauge how your finances will change once you retire. For some people, expenses increase dramatically once they start checking off their bucket list and doing everything they've dreamed of doing for years. For others, expenses shrink once they no longer need to commute or buy work clothes.

During the first two years of retirement, median household spending levels drop around 5% from pre-retirement levels, according to a 2015 study by the Employee Benefit Research Institute. Three to four years into retirement, those levels drop by over 12%. However, after the fourth year, expenses start to creep back up.

What does that mean for you? It means it's important to keep a close eye on how much you're spending now so you're not caught off guard when you're living on a fixed income during retirement.

2. You're putting off savings until you make more money

When you're already struggling to pay the bills, it's easy to put saving for retirement on the backburner. You may tell yourself that you'll start saving again as soon as you get that raise, or after you pay off your debt, or after you take that big summer vacation. But putting off saving for even one year can hurt you in the long term -- even if you save more down the road to try to make up for it.

For example, say you're 30 years old and can contribute $20 per week (or $1,040 per year) to your retirement fund. Let's also say that if you put off saving for 10 years, you'd be able to save $40 per week ($2,080 per year) from that point on. Assuming you're earning a 7% annual rate of return on your investments in both scenarios, here's what your savings would look like over time:

Age Total Savings When Contributing $20/Week Total Savings When Contributing $40/Week
30 (today) $0 $0
40 $14,876 $0
50 $44,139 $29,752
60 $101,705 $88,279
70 $214,946 $203,410

In other words, saving 10 years earlier would leave you with a larger nest egg than saving double the amount later. That's the power of compound interest at work, and even if you don't have a lot to save now, it's better to get started while time is still on your side.

3. You borrow from your retirement fund

If you borrow from your retirement fund once or twice, it's not the end of the world. But once you start borrowing, it can quickly become a slippery slope. One small loan leads to another, and before you know it, your retirement is completely off track.

When you borrow from your savings, you need to pay that money back with interest (and those interest payments go back into your account). However, some retirement plans don't allow you to make additional contributions while you're repaying your loan, so you have to consider the opportunity cost of not making those extra contributions.

For instance, say you have $50,000 in your retirement fund, you're planning on borrowing $5,000, and you expect to pay it back within five years at an annual interest rate of 4%. After five years, you'll have paid around $525 in interest, so you'll have paid back a total of $5,525. Keep in mind that the $45,000 remaining in your retirement fund will continue to grow over the next five years, so assuming an annual 7% rate of return on your investments, those savings will grow to around $63,115 -- bringing your total to $68,640.

However, what could those savings look like if you hadn't taken a loan? Let's say you have $50,000 currently saved and are contributing $100 per month. If you're earning a 7% annual rate of return, you'll have a total of $77,287 after five years.

Now, that $8,647 difference may not seem like a ton of money. But that setback can cost you a lot more over time. Say you're contributing $100 per month and are earning a 7% annual rate of return. Here's what your savings will look like in both scenarios over time:

Age Total Savings After Taking a Loan Total Savings Without Taking a Loan
30 $45,000 $50,000
35 $68,640 $77,287
45 $152,227 $169,237
55 $316,656 $350,117
65 $640,112 $705,935

Over 30 years, that $8,000 difference can amount to over $65,000. That's also assuming you take only one loan.

Bad habits are hard to break, and sometimes even the simplest mistakes can lead to bigger problems down the road. By avoiding these problems early on, you can potentially save yourself tens of thousands of dollars.

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