The Number One Obstacle to Retirement

There’s an important reason many Americans aren’t able to save enough to retire.

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At first it would seem that the biggest obstacle to retirement is not having enough money. Most people simply don’t have enough in the bank to retire comfortably. While that is certainly a big part of the equation, it's just the tip of the iceberg. Why don't many people have enough money to retire? They didn't save enough, of course. But why didn't they save enough? And that brings us to what is, for many, the biggest obstacle to retirement--debt. And the problem isn’t just any debt. The problem is non-mortgage debt.

[See America's Best Affordable Places to Retire.]

Non-mortgage debt creates a triple-whammy when it comes to retirement. First, during your working years you have less to save toward retirement because you must make payments on your debt. Second, unlike a mortgage payment that goes toward a home that over the long term goes up in value, consumer debt usually goes to pay for things that have no lasting monetary value. And third, in retirement you need more income because, in addition to your regular monthly expenses, you must keep making payments on the non-mortgage debt you’ve racked up. As a result, many save less during their working years and need more during retirement.

In a recent study commissioned by Scottrade, for 63 percent of Americans, debt was an impediment to retirement savings in 2009. And 61 percent of Americans expect debt to limit retirement savings in 2010. While there are no easy answers to the problem of debt and retirement, here are some basic strategies that may help you save more and climb out of debt as you work toward your golden years.

1. Stop borrowing. No matter how much consumer debt you have, the absolute most important step is to stop going into more debt. You cannot climb out of the hole until you stop digging.

[See 5 Ways to Protect a Surviving Spouse in Retirement.]

2. Save first. While some advocate ridding yourself of all non-mortgage debt before saving for retirement, this strategy can backfire. Not unlike dieting, you may find the discipline to stay out of debt elusive. So like eating your vegetables first, make saving for retirement a priority today. Even if you save just a few dollars a month, the money will grow and you’ll begin developing good investing habits. Saving first is particularly important if your employer offers a company match for 401(k) contributions.

3. Scale down your budget. To borrow from dieting again, one of the biggest mistakes we make when trying to lose weight is to go extreme. We count every calorie and significantly restrict the foods we eat. Such extreme strategies rarely work in dieting or money. So rather than counting every penny you spend and denying yourself every indulgence, pick the one or two categories of spending that really cause you to overspend. This may include eating out, buying clothes, or, if you’re like me, spending on gadgets. For just these categories, set a reasonable budget and stick to it. You’ll find the approach much easier to follow than budgeting every dime you spend, and you’ll be more likely to stick with it.

4. Plan for the unexpected. We often go into debt to handle emergency expenses. While we can’t guarantee we’ll have enough money to handle every situation, saving up an emergency fund in a high interest online savings account reduces the likelihood that an unexpected expense will send us into more debt.

[See 12 Ways to Make the Most of Your 401(k).]

5. Plan for the expected. As important as planning for an emergency is, we also should be planning for large, anticipated purchases. Whether it’s buying your next car, taking a yearly vacation, or paying for a wedding, these big expenses can sink you deep into debt if you are not careful. So rather than letting these big expenses creep up on you, start saving long before you’ll need the money.

Saving for retirement isn’t easy. If it were, we’d all have enough to retire comfortably. But we can greatly improve our chances of having enough money in retirement if we keep our debt under control.

DR is the founder of the popular personal finance blog, the Dough Roller, and author of 99 Painless Ways to Save Money.