Dave Ramsey’s goal is to help people achieve financial security, and he provides a lot of different advice that you can apply throughout your life in order to make that happen. While Ramsey is pretty focused on helping people pay off debt early in life, he also has some harsh warnings to share about retirement mistakes that far too many people make.
The good news is, if you listen to Ramsey’s warnings, you can avoid these errors, and you can have a more secure retirement because of it. Here are some of the big retirement mistakes Ramsey warns about, along with some tips on how to make sure that these issues don’t trip you up and interfere with your ability to enjoy your later years.
1. Carrying too much debt
Ramsey is very anti-debt and urges people to avoid it throughout their entire life — so it’s not surprising that he is very vocal about the fact that retiring with a lot of debt could be a huge error that costs you your financial security.
On The Ramsey Solutions show, Ramsey explained that you can invest just a small amount each month in a growth stock mutual fund to end up a millionaire. However, he cautioned that there is one big problem that could derail your efforts to both end up wealthy and to live off your savings as a retiree. “You can’t have a $750 F-150 payment,” he warned. “You can’t have a student loan that’s been around so long you think it’s a pet.”
Ramsey is absolutely right about this one. Debt can affect you both during the process of saving for retirement and as a retiree. The more money you are devoting to a large car payment or other past obligations, the less money you have to invest. And, if you go into retirement with these large payments, then you need more income to cover them on top of the funds that you need to pay your current bills.
If you have debt already, consider creating a plan to eliminate it. Ramsey recommends making extra payments on your debts with the lowest balance first, then, as each debt is paid off, you can move on to the debt with the next highest balance. This approach is designed to help you stay motivated because you can see that you are making progress. If you want to save even more money, making extra payments on your debt with the highest interest rate is the better approach as long as you’re confident you’ll stick with your payoff efforts.
Once you have repaid your debt, devote the extra money to retirement savings. Or, if you are retired already, you can start making smaller withdrawals from your 401(k) or putting more of your Social Security benefits into savings instead of sending the money to creditors.
2. Planning to retire on Social Security alone
Ramsey also has another important warning, which was shared on the Ramsey Solutions blog. Specifically, Ramsey warned against making the mistake of trying to live on Social Security alone, cautioning that these benefits are smaller than most people expect and urging people to make sure they save and invest to supplement their benefits.
“Your financial security in retirement shouldn’t come from Social Security—it should come from what you’ve saved over your working lifetime. You are the CEO of your retirement,” the blog reads.
This is also 100% accurate. Social Security benefits are supposed to replace only around 40% of pre-retirement income, and if you want financial security as a retiree, you’ll need significantly more than that to maintain your standard of living. You should invest steadily as much as you can with the goal of building a nest egg that replaces at least another 40% of what you were earning.
By avoiding these mistakes, you can hopefully find yourself with the retirement income you deserve and no debts as you enter into your later years. You’ll be very glad you listened to Ramsey’s advice on not making these errors, and you can enjoy your retirement without financial worries.
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