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7 Greatest Financial Regrets of Older Americans & How to Avoid Them

More than three-quarters of Americans have at least one major financial regret, according to a 2019 Bankrate study.

The financial missteps committed in your youth and middle years especially haunt Americans’ retirements. They’re why 64% of Americans “will retire broke,” per a 2019 survey by GOBankingRates.

The trouble with financial regrets is it often takes decades for the consequences of your actions to become apparent. These are decades you can’t get back, and that lost time impacts your lifelong wealth.

You can turn over a new financial leaf at any time. But some financial decisions cause a ripple effect and follow you for the rest of your life.

Biggest Financial Regrets of Older Americans

Based on these and other recent financial studies, learn from the mistakes of those who have gone before you.

Review your own financial habits, and be honest with yourself about whether you’re repeating these top financial mistakes older Americans report regretting.

1. Not Saving & Investing for Retirement Earlier

In a 2019 survey by New York Life, the No. 1 financial regret listed by older adults was failing to save and invest for retirement at a young age.

Not saving enough for retirement was also the greatest regret reported in the Bankrate study — and one that increased with the age of the respondents.

Few young adults fully appreciate the power of compounding. If you start at age 22 and want to reach $1 million by age 62, you only need to invest $179 per month at 10% returns.

Starting 10 years later, it would take $481 invested per month to reach that milestone. Wait until age 42, with only 20 years of compounding, and it takes $1,381 per month.

If you try to catch up on retirement with only 10 years of compounding, it takes nearly $5,000 per month in contributions to reach $1 million. At lower average returns — which many older adults feel obliged to accept for reduced volatility — it would take even more money each month.

The simple fact is that retirement planning in America has changed over the past generation. The days of defined benefit plans such as pensions are largely a memory. Given the rise of the gig economy and freelance work, many Americans no longer have access to defined contribution plans such as 401(k)s and 403(b)s.

The younger you start saving for retirement, the less you need to save and the more you can rely on compounding rather than contributions to do the heavy lifting for you.

Try maxing out your traditional or Roth IRA contributions each year, and watch your accounts balloon with minimal effort on your part.

Pro tip: If you’re saving for retirement using an IRA, 401(k), or another retirement plan, make sure you sign up for a free portfolio analysis from Blooom. Once you connect your accounts, they will check to make sure you’re properly diversified and have the correct asset allocation. They’ll also check to see if you’re paying more than you should in fees. Read our Blooom review.

2. Not Setting Aside a Big Enough Emergency Fund

Only 40% of Americans can cover an unexpected $1,000 expense, according to another study by Bankrate. Yet most years come with some unexpected major bill. It could be a new roof, a new furnace, a large medical bill, or a new transmission for the car. Huge unexpected bills aren’t the exception — they’re the rule.

That’s why failing to save enough for an emergency fund was the second most cited financial regret in the Bankrate study and the third most common regret in the New York Life study.

Beyond the financial implications of not having enough money for emergency bills, living paycheck to paycheck creates a massive amount of stress.

Emergency expenses are never fun, but there’s a huge difference between “I’m bummed I have to reach into my emergency fund to pay for this” and “Where the heck am I going to come up with $2,000 by next Tuesday?”

Having been broke for many emergencies and financially secure for others, I can attest that the difference in stress levels is indescribable.

Among younger adults, New York Life found that 64% of millennials stated that the advice to build an emergency fund has had the greatest financial impact on their lives.

And irregular income is no excuse for not having an emergency fund. Quite the opposite, in fact. The less regular your income, the greater your emergency fund needs to be.

Save several times the emergency fund if you earn irregular income. If you’re not sure where to start, begin by opening an online savings account with CIT Bank. Once your account is open, determine an amount you can afford to save each month and set up an automatic transfer from your checking account.

3. Maintaining Credit Card Debt

In the Bankrate survey, respondents listed too much credit card debt as their third-highest financial regret. In the New York Life survey, two out of the top four regrets listed were “I relied too much on my credit card” and “I didn’t pay off my credit card balance each month.”

Unfortunately, that often manifests itself in the form of credit card debt. According to credit bureau Experian, the average credit card balance per card is a whopping $6,506.

Although low-APR credit cards exist, most credit cards charge outrageously high interest, often in the 18% to 24% range. That interest compounds quickly, especially as credit card companies encourage you to make only the minimum monthly payment.

Don’t let credit card debt become one of your financial regrets. Start taking steps to reduce credit card balances immediately, and consider the debt snowball strategy to pay off debt fast.

4. Taking on Too Much Student Loan Debt

The fourth most common regret in the study by Bankrate surrounded the other common unsecured debt: student loans.

Upon graduation, the average student loan debt is $29,800, according to Student Loan Hero. That takes years, sometimes decades, for many borrowers to pay back.

Ideally, you can get creative about ways to avoid and reduce student loan debt before you even start college. From scholarships to grants to minimizing your credit load, you have plenty of options available.

Planning ahead helps, but even during and after college, you can still find ways to pay for college without going into debt.

Many graduates find that student debt continues to haunt them well into adulthood. They see it affect their credit score for years and often struggle to qualify for a mortgage to buy their first home.

Even if they qualify, it leaves them cash-strapped each month as they juggle their mortgage, car payments, student loan bills, and other debt payments — all alongside their normal living expenses.

Pro tip: If your student loans have high interest rates, consider refinancing through Credible. They’re even giving up to a $750 bonus to any Money Crashers reader (bonus is paid via e-giftcard).

5. Not Saving Enough for Their Children’s Education Expenses

Many parents want to help their kids out with college tuition to help them avoid student loan debt. Although it’s a less common regret than taking on student debt for themselves, it still troubles parents when they can’t help their kids.

As with retirement savings, the younger you start, the more you can lean on compounding rather than cash contributions.

Consider opening a Unest UTMA account for your child as soon as they’re born, and when friends and family members ask what to give your infant, toddler, or young child for gifts, direct them to donate to the account.

But accounts for minors and 529 plans aren’t the only way to pay for your kids’ college expenses. Come at the problem from as many angles as you can and think holistically about your strategy rather than just saving up money and writing checks for tuition.

Aim to chip away at tuition and other costs by $500 here, $1,000 there, and don’t be afraid to get inventive about ways to help your kids pay for college.

6. Fear of Investing

Far too many Americans are afraid of investing, and it cripples their ability to build a nest egg. This fear manifests itself in the number of Americans who own any stocks at all — a paltry 55% per a 2019 Gallup poll.

That number has fallen in recent years, not risen. In 2004, 63% of Americans owned stocks. But many Americans never emotionally got over the Great Recession, even as most have financially.

It’s a decision many older Americans have come to regret. More than double the number of older Americans (12.3%) cite “I didn’t invest my money” as their top financial regret than those who cite “I made poor investing decisions” (5.5%).

As with so much in life, it’s better to choose an imperfect action than to take no action at all.

Start by opening a basic brokerage account at an investment bank like Charles Schwab or Vanguard. It takes five minutes, and you can do it all online. Then, take $100 and buy shares in an index fund that simply tracks the S&P 500, Russell 2000, or Dow Jones.

Simply by buying a few shares, you can get over the initial overwhelm and fear of getting started, and then you can start investing regularly every month with more confidence.

Better yet, open an account with a robo-advisor. I use Schwab’s free robo-advisor service, but there are plenty of excellent robo-advisors you can choose among for stress-free investing managed by statistically successful algorithms.

7. Overspending on a Home

Far too many Americans overspend on their home. A record number of Americans spend 50% or more of their income on rent according to research by Pew. In 2019, mortgage debt surpassed its previous record high from 2008, hitting $9.4 trillion per the Federal Reserve.

Many homebuyers justify overspending on housing by telling themselves their home is an investment. But the simple fact is that housing is an expense, just like groceries or transportation or entertainment.

The less money you spend on your expenses — including housing — the more you can put toward true investments that generate passive income rather than costing you money each month.

The irony of wealth is that the more you spend on feeling wealthy — on physical possessions like your house, car, and clothes — the less you can put toward becoming wealthy.

Sure, your house might go up in value after 5, 10, or 20 years. Or it might not because it’s a single asset in a single market, which you have almost no control over.

If you want to invest in real estate, buy an investment property specifically chosen for its returns. Or save yourself the headaches of management and buy shares in a REIT or perhaps a crowdfunding website like Fundrise or Groundfloor.

Final Word

What does nearly every regret above have in common?

In one way or another, they boil down to spending too much and failing to save and invest enough money. And most common of all is failing to invest enough money for retirement.

If you don’t save enough money to pay for your children’s college tuition, they can always take out student loans or find other ways to pay for it. If you don’t save enough for retirement, you find yourself broke at an age when you may be unable to work.

Your job may not be there, either. In a worrying trend, older adults increasingly find themselves pushed out of their careers and unable to find jobs at the same income level.

According to the New York Life study, 78% of millennials reported that the advice that led to the most financial impact in their lives was “Don’t live beyond your means.” Another 74% cited the related advice of “Build a budget and stick to it as strictly as possible” as impacting their finances for the better.

Merely feeling wealthy is overrated. Instead, build real wealth in the prime of your youth to enjoy your later years care-free, comfortable, and financially secure.

It may mean watching your friends drive fancier cars and live in larger homes than you do. But as you get older, you won’t find yourself laden with the same financial regrets as the nearly two-thirds of Americans destined for financial troubles in retirement.

G. Brian Davis is a real estate investor, personal finance writer, and travel addict mildly obsessed with FIRE. He spends nine months of the year in Abu Dhabi, and splits the rest of the year between his hometown of Baltimore and traveling the world.

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