3 financial decisions that will make it harder to retire

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The first costs to cut in preparation for retirement are the biggest: your debt, your housing, and your car.
If you choose to take on more debt, live in a house that stretches your budget, or drive a car you can’t afford, you could be compromising your ability to save — and retire when you want.
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In a culture that prides itself on instant gratification, saving for retirement can feel like the opposite of living your best life in the here and now.

However, it’s important to keep in mind that your future self will thank you when you do save, even when it’s hard for you to picture your life decades in the future, says Sophia Bera, a certified financial planner at Gen Y Planning.

"Retirement should be one of your top financial priorities, along with paying off high interest rate debt and building up emergency savings," she says. "These are the three key elements of creating a solid financial foundation. Without this foundation, it’s difficult to address other financial goals."

With those three elements in mind, it’s also important to avoid making financial decisions now that could cause roadblocks to your future financial planning. Three of the biggest financial decisions you can make now that could make it harder to retire in the future are:

1. Taking on student loan debt later in life

That loan could be for you or for others — maybe for grad school, or to help your children with their education.

"Parents are giving their adult children more money than ever, and it’s a bad sign for their own retirement," reported Business Insider’s Tanza Loudenback. "Seventy-two percent of parents said they put their children’s interests ahead of their own need to save for retirement, according to a 2018 Merrill Lynch survey."

It’s common, and understandable, to want to help your children out, but it may also compromise your ability to save for retirement.

"Now, more than ever, people have competing financial priorities," says Bera. "We want to pay off debt while saving for a down payment while helping out family, and we also know that we need to save for retirement, but sometimes this gets pushed to the bottom of the list since it’s so far away, or it feels like such a big goal."

Student loans can be an expensive form of debt — the kind experts recommend eliminating as soon as possible. They could put a huge financial strain on your own financial security in retirement, says Bera, and should be avoided.

2. Owning more house than you can afford

Being "house poor" is one of the quickest ways to lose your financial footing, says Bera. "Living in a more affordable home with a smaller mortgage will allow more room in your budget to save for the future," she said.

Hand-in-hand with downsizing is relocating — real estate costs in the US vary widely, and it’s not uncommon for retirees (or anyone else) to move to an area with a lower cost of living, where they can live in the type of home they want to live without paying a premium based on its location.

In fact, in cities like Princeville, North Carolina and Nunnelly, Tennessee, the median home value is less than the cost of a new car.

3. Driving a luxury car when you can’t afford it

Much like buying a home you can’t afford, buying a luxury car isn’t always necessary, either.

"It might be time to stop upgrading your vehicle and instead trade it in for a car you can pay off quickly," says Bera. "People who always have car payments are missing out on opportunities to redirect that cash towards getting on track with other financial goals, like saving for retirement."

It’s not just the monthly car payment that’s draining your money, either — it’s also the cost of gas, insurance, parking and depreciation, says Bera. Instead, "drive an older vehicle that you can pay cash for, or forgo a car completely and redirect the savings towards retirement," she says.

It’s not too late to fix a misstep

If you’ve already taken on student loans later in life, bought a house you don’t think you can afford, or a car that costs way too much per month, don’t fret. "Start by addressing your biggest monthly expenses, likely housing and transportation costs," says Bera. "Is there anything you can do to cut these expenses significantly?"

If so, Bera suggests doing them now. If you don’t see a way around them, re-examine other monthly costs and figure out what you can cut and how you can earn extra money each month to save even more for retirement.

Making a few other small changes can make a big difference in your retirement planning, as well. For example, Bera suggests automating your retirement savings so you don’t have to think about it every month, or increasing your 401(k) contributions by 1% and then setting a calendar reminder to increase it again in six months. If you don’t have a 401(k), start a Roth IRA with a $100 monthly contribution.

"If your income is growing every year, so should the amount that you save for retirement," says Bera. "Keep increasing your retirement contributions every year. Your future self will thank you."

Read more about successfully setting yourself up for retirement:
3 expenses to avoid if you want to retire in 10 years
5 things to do by 50 to make sure you can retire when you want
4 healthcare costs in retirement no one warns you about
Here’s how much more money you’d have for retirement if you saved $100 a month starting at 25 instead of 35