5 Ways You’re Sabotaging Your Early Retirement Dreams

Retiring early requires hard work, goal setting and sound financial habits. Even if you have some good habits that would otherwise help you retire early, a few key missteps could sabotage your efforts. 

Keep reading to learn ways you may be sabotaging your early retirement dreams. Most of these are pretty simple things that can easily be corrected.

A 401(k) is a retirement savings plan offered by your employer. When you contribute to your 401(k), money from your paycheck is automatically withdrawn pre-tax and invested. As long as the money stays in the 401(k) account, you won’t have to pay taxes on any investment growth, interest or dividends. However, when you withdraw money from your 401(k) account in retirement, you will have to pay income taxes.

“One of the primary obstacles to early retirement is a lack of savings discipline,” said Maria Szandrach, CEO of Mentalyc. “Many individuals fail to prioritize saving for retirement early in their careers, instead focusing on immediate wants and needs. This lack of foresight can significantly delay their ability to retire early.”

Many employers will match a portion of what you contribute to your 401(k). If you are not already meeting this match, you are potentially throwing away free money, therefore not helping you reach your early retirement goals. You can contribute beyond this match, too. If you can afford it, increasing your 401(k) contribution may be beneficial to help you save for retirement. 

“Adopting a disciplined approach to saving, such as automating contributions to retirement accounts like 401(k)s or IRAs, can help build wealth over time,” Szandrach said. “Setting specific savings goals and regularly reviewing progress can also provide motivation and accountability.”

If you don’t have access to a 401(k), you can open and contribute to other types of retirement accounts, like a Roth IRA, a traditional IRA, a SEP IRA or an HSA.

Spending more than you can afford to pay off each month on your credit card can cause you to easily accumulate debt quickly. As of March 18, the average credit card interest rate was 27.94%, which makes it challenging to pay off your bill once you fall behind. 

“Living beyond your means can lead to financial instability, delaying or even derailing the prospect of early retirement,” said Keisha Blair, founder of The Institute of Holistic Wealth. “Accumulating debt and failing to save for the future diminish the financial freedom required to retire early, perpetuating a cycle of working longer than intended.”

Always pay your credit card balance in full and on time every month. And don’t spend more on your credit card than you can afford to pay. If credit cards are too tempting to overspend, you could try paying for things only in cash. 

“Adopt a frugal and mindful approach to spending,” Blair said. “Create a budget that prioritizes essential expenses while allowing for savings and investments. Evaluate purchases based on their contribution to long-term goals rather than short-term gratification. Practicing financial discipline lays the foundation for a secure and timely early retirement.”

If you haven’t had a raise in a while, you may be due to keep up with inflation. Although it can be scary, it is essential to continue to earn more money so you don’t fall behind with inflation. 

Before asking for a raise, you should prepare by doing research on comparable salaries for your position. You should also make a list of the reasons you deserve a raise. Include things like how much money you generated for the company and your successes. You should approach asking for a raise by highlighting your value to the company, not by focusing on how badly you need a raise.

Eating out or getting takeout from restaurants can be a bad habit that can happen easily. Eating out is convenient, social and entertaining. However, it can be expensive, and eating out too frequently can cut into your early retirement goals. 

Try cooking at home instead. If you dine out for the social aspects, try inviting friends over to take turns cooking at each others’ houses or doing a potluck.

An emergency fund is essential so you can cover emergency costs if they come up without going into debt. You should work toward having at least three to six months of living expenses in your emergency fund. Things like emergency car repairs or large medical bills can be expensive. Instead of putting these bills on a credit card or taking out a loan, you can use your emergency fund.

A great place to keep your emergency fund is a high-yield savings account. A high-yield savings account offers interest rates that are often higher than the average interest rates of the current market. With a high-yield savings account, you can access your money any time you need it, but the money will still earn interest while it is in the account.