How to Eliminate Liabilities and become Financially Comfortable at Retirement

Most Americans enter the workforce as young adults with a dream and vision of retiring one day.  The large majority of companies offer employees retirement benefits, and most people have some form of 401k or other retirement investment vehicle.  Most Americans are very aware of the need to save for retirement; however, the reality is that very few Americans actually retire comfortably.

How to Eliminate Liabilities and become Financially Comfortable at Retirement

Here are a few government statistics that depict the financial state of Americans:

  • 70% of working Americans do not believe they will have enough money to retire, and between the ages of 30 and 54, nearly 80% feel this way.
  • The average savings of a 50 year old in the U.S. is only $2,500
  • 62% of Americans retire with less than $25,000 in assets
  • Another 35% retire with less than $100,000 in assets

These statistics make it clear that very few people actually retire comfortably.  The question we need to ask is why?  Is the problem simply that most Americans do not earn enough money to save sufficiently?  To answer this question, let’s calculate the lifetime earnings of the average American.

If a person lands a job paying $30,000 per year by the time they are 25 years old, then they will have earned over $1.8 million over the course of a 35 year working career if they simply receive an inflation raise of 3% each year!  That is a lot of money.  Basic personal finance tells us to save 10% of what we make in a savings account.  If the average person were to do this, they would save over $180,000 over the course of their career, and that figure is not taking any interest into account.  With interest the figure would be substantially higher.  The problem is most people do not save; instead, they fall victim to American consumerism.

The American economy is based on consumerism, which means that if you and I do not spend money, the economy will completely collapse.  From youth, most Americans are taught that debt is a way of life.  Most young people are expected to incur heavy debts to pay for college, then they go into further debt by financing day-to-day expenses with credit cards, and car loans are usually the next stop.  When most Americans begin earning more, they simply increase their standard of living proportionately by driving nicer cars, living in nicer homes, taking nicer vacations, etc.  Thus, no real, substantial increase in savings is ever established.

The first step to building substantial net worth and saving for retirement is to eliminate liabilities and make the decision to live debt free.  This can be very difficult initially.  Let’s break it down into simple steps.

  • Write out all of your liabilities.  List the exact dollar amount you have on balance and the accompanying interest rate.
  • List them in order of highest interest rate to lowest.
  • The next step is to track all of your expenses for 1 month.  Write down every single penny you spend whether it is for a pack of gum or a new television.
  • At the end of the month take a brutally honest evaluation of where you are spending your money, and decide how much of it is non-essential.
  • Take all of these non-essential funds and funnel them into paying off your highest interest debt, and commit to keep living this way until all of your debt is paid off.
  • Once your debts are paid off, don’t start spending money like a drunken sailor again.  Instead, begin saving it.  A solid foundation of financial independence will be built once you have 6 months of living expenses saved up and you are debt free.

With proper planning and discipline, anyone can be debt free.  No matter how difficult your situation may seem, you can get out by following this advice.  Risky investment such as stocks and forex should be avoided until a solid foundation is laid.

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