26 Retirement Obstacles that Look Scary and How to Overcome Them

Are You Afraid Your Retirement Will Be Ruined by These 26 Things?

If you ever had to embark on a big undertaking, whether it’s about running a marathon or something simple like cleaning your garage, you’ve probably encountered a series of impediments that delayed or even derailed your entire progress. It could be anything, like a knee injury, for instance.

Other things can be more characterized as excuses since you don’t know what to do with those old cans of paint, so you simply decide to watch Netflix instead. On a similar note, you will likely have to face barriers and detours on the road to a peaceful and comfortable retirement.

In fact, according to the latest Charles Schwab survey focused on 401(k) participants, no less than 99% of Generation Z workers declared they have to face a series of obstacles in saving for retirement (which is 9% more than last year), rapidly followed by 88% of millennials and 91% of Gen Xers.

Whether you’re just starting your career or actually getting close to wrapping up your working years, here are a bunch of strategies you could adopt to navigate your way to a proper retirement.

Photo by J.J. Gouin from shutterstock.com

There is no room in the budget to save.

When you’re starting out in the workforce, leaving your paycheck at the last minute until the end of the month could be quite overwhelming, especially since the cost of living is way higher than a couple of years ago.

Even if it’s tempting to postpone saving for retirement until you are a bit more financially secure, even the slightest contribution to a 401(k) or other retirement savings plan could add up over time. It’s also very important to build savings into your budget.

Even if it’s too simplistic to suggest that millennials and Gen Zers could solve their money issues by giving up expensive coffee drinks or avocado toast, these expenses can ultimately add up to a lifestyle creep. It’s not even about the latte; it’s more about the habits you’re creating for yourself.

You should start by conducting an audit of all the expenses over the past three months. You can also download a budget app to track your spending and create your own spreadsheet. Moreover, use that bank account of yours and your credit card statements to track your spending.

There are many financial institutions that can provide a breakdown of expenses depending on category. As soon as you complete this exercise, you will be able to identify all the things you can live without.

401(k) contribution limits

This year, workers younger than 50 have the option to stash up as much as $23,000 in a 401(k) or any other employer-sponsored plan. The vast majority of young workers can’t even afford to save that much, but there’s a possibility for your employer to give your savings a well-deserved boost.

Over 85% of 401(k) plans that are managed by Fidelity Investments, which is the country’s biggest 401(k) provider, manage to match employee contributions. Of course, formulas might differ, but there’s one common structure: the employer matches $1 for every $1 you add to 3% of your salary and 50 cents for every dollar you add to the next 2% of your salary.

Besides, remember: even the smallest contribution, plus the match, will exponentially grow over time. If you manage to increase the contributions, the balance will grow even faster. Plenty of employers let you grow the contributions to your 401(k) by 1% to 3% of your salary a year. Even if it sounds quite counterintuitive, there’s no better time to start investing than when you’re young and broke.

What type of 401(k)?

Besides offering a traditional 401(k), the vast majority of big companies will give workers the option of investing a part or all of their contributions in a Roth 401(k). The money that got invested in a Roth 401(k) is after-tax, so your contributions won’t even reduce your taxable income.

However, when you’re just starting out and you don’t earn too much, the tax break you get from a traditional 401(k) might not add up to too much. Besides, your future self will definitely thank you for thinking of investing in a Roth 401(k), because after turning 60, withdrawals will be tax-free.

Besides, starting this year, you won’t even need to take minimum distributions after you retire. You can also contribute to both a traditional and a Roth 401(k), as long as your total contributions don’t exceed the annual thresholds.

Your employer doesn’t offer a 401(k) if you work for yourself.

If your employer provides a 401(k) or other similar plan, saving for retirement becomes a no-brainer. As a matter of fact, two-thirds of large employers should automatically enroll all new employees in such a plan. Workers who don’t want to participate are asked to opt-out.

However, if you’re self-employed or you work for a company that doesn’t offer a retirement plan, you might need to put in extra effort and save for retirement. The benefit of this is that you have many tax-advantaged options that you can choose from.

Traditional IRA

If you work for an employer that doesn’t offer a retirement plan, you can also take a deduction on your tax return for contributions to a traditional IRA, no matter the amount of money you earn.

This year, you can deduct as much as $7,000 plus $1,000 in catch-up contributions if you’re 50 or older. Moreover, if your spouse is covered by a workplace plan and you aren’t, you can easily deduct the maximum amount, as long as the modified adjusted gross income is less than $230,000. If your MAGI is somewhere between $230,000 and $240,000, you can also claim a partial deduction.

Roth IRA

Another great option is a Roth IRA. You can contribute as much as $7,000 ($8,000 if you’re 50 or older) to a Roth, but only if you have a modified adjusted gross income of $146,000 or less, or $230,000 or less for couples who filed jointly. It’s worth noting that the $7,000 or $8,000 maximum contribution is the total amount you can allocate for both traditional and Roth IRAs.

There isn’t any other up-front tax break, but withdrawals are tax-free when you retire, and you won’t have to take the required minimum distributions. You can also withdraw contributions at any time without paying taxes or penalties.

Solo 401(k)

A solo 401(k) is worth taking into consideration if you’re self-employed or you have a business where the other employee is your spouse. The contribution structure has two separate parts: as an employee, you can make all kinds of elective deferrals of up to $23,000 in 2024, with catch-up contributions of up to $7,500 if you’re 50 or older.

If you are an employer, you have the option to contribute up to 20% of your net self-employment income, for a combined total of up to $76,500. Contributions to a traditional solo 401(k) are tax-deferred, and some providers also have a Roth option.


In 2024, self-employed workers can easily contribute the lesser of 20% of their net income, or even $69,000, to a SEP IRA. They generally do not have as many administrative requirements compared to solo 401(k) plans.

Moreover, if you expect to hire employees (other than your spouse), a SEP IRA is definitely a better choice. Also, keep in mind that you might be required to contribute an equal percentage of your salary to all eligible employees.

Before, you had the option to make pretax contributions to a SEP IRA, but legislation enacted in late 2022 allowed SEP IRA providers to offer a Roth option. Even if the provision becomes effective in 2023, it might be a while before providers can make the needed administrative changes to offer a Roth SEP IRA.

Student loan payments

In October 2023, a three-year pause on federal student loan payments finally ended, which forced millions of Americans to continue paying a total of more than $1.6 trillion in debt. The average payment is $203 a month, according to a thorough analysis conducted by the credit bureau Experian, which shows yet another significant expense if you already have trouble paying your bills.

Even if student loan payments might feel like a burden, the worst thing you could do is decide to ignore them. Student loans are almost impossible to discharge in bankruptcy, and if you default on your loans, your credit score will be tarnished. Besides, the government could garnish your tax refund and other federal benefits (Social Security included if you are still in default when you retire).

Ways to cut down on student loan debt

However, there are a series of steps you could take to make your payments more manageable and free up existing funds to effectively contribute to your retirement plan. First, you might start by checking if your employer offers repayment benefits.

Some employers have been able to provide employees with tuition assistance as a tax-free benefit, even if pandemic-related legislation that was enacted in 2020 expanded the benefit to include both principal and interest on qualified student loans.

This expanded benefit is expected to expire at the end of 2025, and the maximum amount that would be eligible for tax-free treatment is $5,250 a year. Another viable option is to switch from the standard 10-year repayment plan to a different, income-driven repayment (IDR) plan.

This way, you can adjust your monthly payment to a minimum, especially if your income is low enough. You could also be eligible for loan forgiveness after 20 to 25 years of payments. But you could also end up paying more in interest in the long run.

Contributing to a 401(k) or any other retirement plan might help you qualify for a lower payment with the right IDR plan. Monthly IDR payments are decided depending on family size and your adjusted gross income, and contributions to a tax-deferred plan might reduce the AGI. The U.S. Department of Education has a loan simulator you could use to estimate monthly payments with various repayment options.

Social Security changes coming in 2024 retirement
Photo by pikselstock from Shutterstock

Changing jobs

Workers between 18 and 24 change jobs on average 5.7 times, while those between ages 25 and 34 change jobs 2.4 times, as the U.S. Bureau of Labor Statistics showed. However, if you are still young and don’t have a lot of money, it’s quite tempting to cash it out after leaving a job.

However, the short-term cash withdrawal also has a significant long-term cost. When you cash out a 401(k) or any other tax-deferred plan, you might be required to pay federal and even state income taxes on the entire withdrawal and a 10% early withdrawal penalty if you are under 55.

But besides the significant haircut, over 40% of job changers take cash out of their 401(k) plans, and 85% of the ones who decide to withdraw the entire balance. That’s quite unfortunate, especially since it’s easier than ever to avoid a costly cash-out.

Under the current law, if you have a balance of a minimum of $7,000 in your former employer’s 401(k) plan, your job is obliged to allow you to leave it where it is. If you have a minimum of $1,000 but less than $7,000, your former employer is obliged to deposit the funds in an IRA.

Moreover, for balances of less than $1,000, employers need to send you a check. You might also decide to leave the money in your former employer’s plan if the offered investment options and fees are something you want to consider. However, it’s worth mentioning that you won’t be able to make other contributions.

Rollover your old 401(k).

At the same time, you might roll the funds into your new employer’s 401(k) plan. The majority of plans allow rollovers, and it’s also convenient to keep all your savings in one place. To avoid unwanted taxes and penalties, you could arrange for the funds in your account to go right to your new employer’s plan rather than go to you first.

If you’re not too impressed with the latest plan or rollovers aren’t allowed, you could roll the money into a traditional IRA. Your funds will continue to grow tax-deferred, and you might have other investment options than the new plan offered by your employer. Make sure you arrange for a direct transfer of funds, just to avoid penalties.

Borrowing from your 401(k)

Ultimately, if you have an immediate need for funds in the short term, you might take what is effectively an interest-free loan from your account by taking the money, depositing it in your bank account, and redepositing the funds into an IRA or any other tax-deferred account within 60 days.

But your employer has to withhold 20% of the withdrawal to cover additional taxes, and if you can’t come up with the money by a 60-day deadline, you might be on the hook for any additional taxes and potential early withdrawal penalties.

No money for emergencies

Only 48% of American adults declared they have more than enough in their savings to cover three months’ worth of expenses, and 22% don’t have any kind of savings. What’s even more concerning is that 36% of adults stated they have more credit card debt than savings.

When you’re confronted with a financial crisis, whether it’s a job loss or a medical emergency, it can be quite tempting to tap your retirement savings plan. Even if it’s years away, your crisis is right now. Even so, the slightest withdrawal from your 401(k) could potentially jeopardize your retirement security, so you might want to view the withdrawal as a last resort.

What is a hardship withdrawal?

The IRS lets 401(k) plan participants withdraw from their plan and meet “an immediate and heavy financial pressure,”  which also includes medical expenses, preventing foreclosure or eviction, tuition payments, funeral expenses, and any other expenses and losses that might be related to a natural disaster.

Depending on your plan, you might even be allowed to take a hardship withdrawal and purchase your primary home. When you take a hardship withdrawal, you don’t have to repay anything. However, that’s not necessarily a good thing, especially since you can’t put the money back either.

What’s even worse is that you will have to pay taxes, and maybe even early withdrawal penalties, on the withdrawal, which could reduce the amount of money you have on hand.

What is a 401(k) loan?

A 401(k) loan could be a better option, even if it has its own downsides. Depending on the plan, you could borrow as much as 50% of your savings and up to a maximum of $50,000 over a 12-month period.

Plans generally charge interest of one to two percentage points above the rate, which is now 8.5%. Unlike other types of hardship withdrawals, a 401(k) loan generally comes without restrictions on how you could use the money. Workers could even choose to use such loans for everything, from college tuition all the way to making a down payment on a house.

The rising cost of childcare

The United States Department of Agriculture estimated that it could cost the average family around $331,933 just to raise a child born in 2023 until age 18. Moreover, this doesn’t even include college expenses.

A huge contributor to the total is the cost of daycare, which has grown exponentially in the last few years. The average family spends around 27% of household income on child care, and almost 60% of parents declared they expected to spend over $18,000 per child on care in 2023.

What’s a flexible spending account (FSA)?

To rein in those costs, you need to make sure you take full advantage of all the tax breaks and workplace benefits that are available to you. The wide majority of large employers also offer a dependent-care flexible spending account (FSA), which also allows you to make pretax contributions of up to $5,000 a year.

You can also use the funds to pay for the care of children younger than 13. If you’re wondering whether or not you qualify, you need to require the care of both you and your spouse. You can also use those funds to pay for the care of adult dependents who are simply incapable of caring for themselves.

Other eligible expenses might include qualified child-care centers, a nanny or even a babysitter, before and after-school care, nursery school, preschool, but also summer day camp. The money you set aside in an FSA will be subtracted from your paycheck before income taxes are calculated. This will also help you avoid the 7.65% Social Security and Medicare tax. The benefits are more valuable as your tax bracket rises.

Tax credits for dependent children

As an alternative, if you paid a provider to take care of your under-13 children, you could be eligible for a non-refundable tax credit of 20% to 35% of qualifying expenses and up to a maximum of $3,000 for one child or $6,000 for two or more children.

The Child and Dependent Care Credit could also help pay for the costs of caring for other dependents. For instance, expenses related to caring for an older parent could qualify for the credit, but only if the older parent is claimed as a dependent on the child’s tax return.

Also, you don’t have the option to claim the Child and Dependent Care Credit for expenses that are paid with funds from your dependent-care FSA. The FSA generally provides more tax savings than the Child and Dependent Care Credit, only because the amount of the credit declines as your income increases.

But if your child or even your dependent care expenses surpass the $5,000 FSA limit, you have the option to claim the credit for up to its total amount in out-of-pocket costs that aren’t covered by withdrawals from your FSA.

You can get other types of employer benefits besides a flexible spending account. More companies decide to subsidize child-care costs to attract more employees. Some of them offer affordable daycare on-site, which is just as great.

If you’re pondering whether or not you should change your job, it’s still worth asking potential employers what they’re doing to support employees who have young children or any other dependents.

College costs

We all want what’s best for our children, and for many of us, this means making sure they get a proper college education. Well, if you struggled to pay off your own student loans, then you probably want your children to avoid having the same fate. However, your adult children might not appreciate your sacrifice if you run out of money in retirement and they end up supporting you.

529 plan

You could contribute to a 529 college savings plan, which is an account that offers tax-free investment growth and no taxes whatsoever on withdrawals, as long as you use the proceeds for qualified higher education expenses, like tuition, room and board, books and supplies, and computers and internet access.

Almost all states offer a 529 plan, and depending on where you live, you could get a state tax deduction or even a credit on contributions as long as you use your own state’s plan. The majority of people don’t have any minimum investment requirements, so even the slightest contributions will ultimately add up if you decide to start on time.

Contributions from grandparents and others could definitely help your savings compound and grow. As your child gets closer to college age, you have plenty of options that will keep the costs down, including scholarships and advanced placement courses that will allow your child to earn a higher college score.

Health care costs

Even a properly funded retirement plan can be easily sabotaged by a medical emergency or chronic illness. One of the best defenses against this retirement derailer is a proper offense, which in many cases represents a health savings account.

What is an HSA?

A health savings account offers one of the most effective ways to save for out-of-pocket medical costs. For instance, contributions to an HSA are basically pretax (or tax-deductible if your HSA isn’t provided through your employer), funds grow tax-free, and withdrawals are completely tax-free as long as the money is used to pay for eligible health care expenses.

In 2024, you might be able to contribute up to $4,150 to an HSA if you have an individual health insurance plan or even $8,300 if you have a better family plan. If you will be 55 or older at the end of the year, you might add an extra $1,000 in catch-up contributions.

To properly qualify for an HSA, you need to be enrolled in a high-deductible plan, which this year is defined as an individual plan with a deductible of a minimum of $1,600 or a family plan with a deductible of $3,200 or more. The plan needs to limit out-of-pocket expenses to $8,050 for self-only coverage or even $16,100 for family coverage.

High-deductible plans

High-deductible plans generally have lower premiums than preferred provider organization (PPO) plans. This means you will have more money in your paycheck to contribute to your preferred retirement savings plan. HSA funds will help you cover your plan’s deductible, and some employers might want to match a portion of your contributions.

Naturally, unused funds can be easily rolled over to future years. If you leave your job, you could take the account with you. Moreover, you can withdraw money from the account tax-free at any time for needed medical expenses.

Moreover, if you have the capacity to cover any out-of-pocket expenses with other money, you can use that account to save for medical expenses. As soon as you reach 65 years old, you can take penalty-free withdrawals from your HSA for non-medical expenses, even if you will have to pay income taxes on that money.

The triple tax benefit that HSAs can provide becomes even more powerful if you invest the money in the stock market, and the wide majority of large HSA providers offer such an option. However, research by the Employee Benefit Research Institute discovered that only 12% of account holders decide to invest in assets besides cash.

Putting money in your HSA’s cash account also makes a lot of sense, especially if you know you might need it for your medical expenses. But the best-case scenario is to invest a minimum of a bit in your account and tap into all the tax benefits that come with it.

Moreover, you want to consider putting aside enough in your HSA’s cash account to make sure you cover your estimated co-payments, deductibles, and other near-term medical expenses. The rest, you can invest.


Over half of employees identify as caregivers, 57% of women included. Taking care of young children, elderly parents, or even both could force a lot of people to cut back on their work hours or even leave the workforce entirely, which creates a significant barrier to saving for retirement.

If you’re currently juggling work and caregiving, you need to start by looking to your employer for some help. Even if close to 90% of employers have some kind of caregiving support, only 41% of them know about these programs, and less than one-third of working caregivers take advantage of them.

Quit the job or hire a caregiver.

You could be prone to leave the workforce and take care of young children or even aging parents, especially since hiring a caregiver could consume most or even all of your salaries. But exiting the workforce also involves more than giving up a paycheck because you forgo the opportunity to contribute to your retirement savings plan.

Taking much-needed time out of the workforce might also reduce future Social Security benefits, which are mainly based on your 35 highest-earning years. If you don’t have any other choice than to leave the job, you don’t need to abandon saving for retirement completely.

If your spouse has earned income, he or she can easily contribute as much as $7,000 plus $1,000 in catch-up contributions if you’re 50 or older. If your spouse is covered by a 401(k) or any other workplace plan, contributions to such a traditional spousal IRA are also deductible, as long as your joint adjusted gross income is less than $230,000. The deduction also phases out for AGI between $230,000 and $240,000.

If you found this article insightful, we also recommend checking out: Unlocking Savings: Best Lesser-Known Tax Breaks for Those 65+


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