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Tired of Saving for Retirement? Try This!

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My husband, a third year medical student, was studying during a break at the hospital when he overhead a conversation. A nurse asked another nurse if she should take money out of her 401(k) to pay for a trip to Mexico.

She had been overworked lately and desperately wanted to use some vacation time to take a break. The other nurse said those four little words that have wrecked countless families’ finances: “Honey, you deserve it.”

My husband sat there and listened to the whole conversation, including the part where the nurse went into her 401(k) at work, transferred $5,000 for her vacation, and then actually booked an all inclusive resort.

I honestly couldn’t believe he just sat there and let it happen! I was actually incredulous. “Did you tell her about the fees? Did you tell her what a bad, bad, bad idea that was?” He didn’t.

He said it wasn’t his place. As a student, he is apparently incredibly low on the totem pole and didn’t want to do anything that would affect his ability to get recommendations for residency, including butting into someone’s conversation. However, I still can’t get that nurse out of my head. It’s an example of the bad advice we’re given every day about what we should be doing with our money.

Buy Life Insurance!

 

I’ve been collecting examples of the worst financial advice around over the past few months, and this story serves as the inspiration for this last installment of my series. That one nurse gave advice (“You deserve it) that will affect her co-worker’s finances forever. She’s not the only one who has encouraged someone else to change their retirement savings.

My friend Matt Becker from Mom and Dad Money said the worst financial advice he ever received was from an insurance salesman who told him “to stop contributing to my Roth IRA and use the money to fund a whole life insurance policy instead. Needless to say, I didn’t take the advice and decided to look elsewhere for my insurance needs.”

Spend now, Think later!

 

It seems like our world has permanently shifted to a “buy, buy, buy” society instead of a “save, save, save” society. Somehow, stories emerge all the time about people who withdraw their retirement savings or stop contributing to their retirement accounts to fund the life they want rather than the life they should have.

I even recently heard a radio commercial that listed all of the great things you could buy with your tax return. I doubt my plan for my tax return (to max out my 2014 IRA) would make for a very good commercial. It’s just not sexy to save and invest in your retirement. It’s much more appealing to have the large house, the newest car, and the best clothes.

A final plea from your future self

 

Trips to Mexico are great. I’d pretty much do anything to be at the beach with a margarita in my hand right now instead of a dirty diaper and a snow shovel.

However, I know that this phase of my life is just that – a phase. Some day, all of my budgeting and saving and bypassing the more luxurious things in life will pay off. I’m committed to investing in my retirement fund even while in student loan debt.

I’m passionate about telling others about the importance of saving for retirement, of maxing out your company’s match, and of reducing your expenses.

Simply put, don’t take money out of your retirement fund. Not to fund a whole life insurance policy. Not to buy a new house. Not to go to Mexico. Your future self will thank you.

 

What’s the worst financial advice you’ve ever heard? What have you had to give up to save for retirement? How do you resist the urge to spend now rather than save for later?

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Catherine Alford is a professional public speaker and freelance writer who covers family, finance, and freedom. Check out her blog, BudgetBlonde, and her bio at CatherineAlford.com.

35 Comments

  • Wow – that’s terrible. BUT – I actually did something even worse (I think). When I was young and had no clue about money I took out an unsecured personal loan at 13% interest to go on vacation. The worst thing was my flight ended up getting cancelled (I worked in the industry so staff were the first to get bumped) so I never got to Hong Kong and I still didn’t pay back the loan. I somehow managed to spend it. It took a couple years to pay back. I still cringe when I think about it!

  • “Spend now, think later”, is definitely a big NO! I know someone who encourages us to spend now because of the YOLO thing, but for me, I should save more for my retirement so that my future self will thank me.

  • I have been on both sides of the story. When I was young, we cashed out a small 401k after leaving a job instead of rolling it into the next one. Now that I’m truly focused on our finances, I know how stupid that was and how much further we would have been to our retirement goals if we hadn’t done that. Thanks for the great post!

  • Catherine says:

    Totally agree. Worst advice that I received was tk sign up fot a new credit card “in case an emergency happens”…Ummmm.nope. I was however convinced by friends to use my student line of credit to buy crap I didn’t need ot want which was regret.

  • Rebecca says:

    I read an article one time that had a formula for figuring out how much this item would earn if you invested that money. I used to actually do the math. As time goes on it just comes easier not to spend. The worst advise I have ever received is that I needed a student loan to go to college.

  • MoneyAhoy says:

    Wow – that’s insane that someone would cash out their 401K to take a vacation. Really? I think I feel sick…

  • Oh no! It almost makes me sick to hear about what that nurse did! It is so sad that we have such poor financial literacy in this country for the most part. It makes me wonder if she will ever wake up and realize what a big mistake that is? She probably will, but it might not be for decades- until she wants to retire and has no money to do so!

  • That story makes me cringe! That would be so hard to hold your tongue if you overheard something like that. But it sounds like she had already made her decision if she withdrew the funds that quickly AND booked the resort.

  • One of my friends cashed out some of her retirement to buy her husband a golf cart as a surprise. He was like, “WHAT?” It was so sad.

  • I know a few people who have taken money from their 401k to buy a house, but I’ve never hear of taking it for a vacation… that’s crazy.

    But the thing is, a lot of people just don’t know that it is a bad idea to do that. We just have to keep on educating people and slowly, but surely, they’ll understand what’s at stake. It took ME 31 years to realize it.

  • Kathy says:

    This isn’t an example of bad financial advice but rather a really bad decision we made. We financed a car using our HELOC so that we could deduct the interest paid on the loan. That wouldn’t have been so bad but we then got a different vehicle before paying off the original one. And then we refinanced our house including the HELOC. We did pay off the house early but we could have been paying on the vehicle for 30 years! Yikes!

  • Mrs. Maroon says:

    Ugh. What an awful story. It would be painful to watch is happening, but then again I’m not confrontational at all, so I’d likely not say anything either. The biggest thing is that we haven’t really given up anything just to save for retirement. So much of the stuff we spent money on in the past was junk and didn’t add to our happiness. Working towards early retirement gives us the satisfaction that we are taking the steps to make us truly happy, not masking our happiness by stuff.

  • Wow that is very bad! My friend works at a hospital and there’s a woman she works with who has taken out over $20K extra in student loans to fund time shares and cruise vacations. Makes me cry whenever I hear about a new vacation of hers!

  • Syed says:

    I was cringing just reading about that nurse. Why not even wait a few days to think about it she made the transfer right at work. I guess she’s not a fan of delayed gratification.

    I’ve been hearing some bad advice everywhere regarding the recent decrease in gas prices (which are not surprisingly going back up). I’ve heard many a financial guru say that this is a kind of “tax refund” and you should use it to make your New Years a little more memorable or take a vacation. Not one mention of paying off debt or even saving the money for a rainy day.

    • Cat says:

      Sigh, of course gas prices are going to go back up. I don’t know why everyone gets all excited, as if they were going to stay that low forever.

  • Buy a house so you can get a tax deduction! That’s a good one I hear from time to time. “I deserve it.” What a phrase! Painful story. I wonder if I would have been able to use the restraint your husband did.

  • Those stories always bum me out. You want to interject but it’s really not a good idea.

  • My biggest mistake is this mindset “Spend now, think later”. I always regret whenever I practice this because I am left with nothing after. I hate the feeling of being fully dependent on using credit cards and owing money from my parents.

  • I think cashing out the 401k for instant gratification happens more than you’d think. Luckily that’s one we never did, but we made all kinds of other stupid mistakes. I probably wouldn’t have said anything to the nurse either if I didn’t know her very well. It probably wouldn’t have made a difference if her mind was made up.

  • This is why I always tell clients that retirement money is moon money and you shouldn’t think of it as easily accessible. I am with Matt, I have heard some REALLY bad advice around whole life policies. I actually sat through a very compelling pitch where even I was a little swayed, until I looked at the fine details and realized the performance was equivalent to 2% returns over the life of the policy. Interest rates are low now, but 2% returns are not really all that difficult to beat.

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