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I read daily about seniors who can’t pay their bills in retirement, who say it’s unfair for them to pay property taxes for schools, who say they deserve higher SS COLAs etc.
Some people, through no fault of their own, because of uncontrollable misfortune, did not have the ability to save and build retirement income at whatever level they were throughout life. But those folks are far from the majority.
So what happened that after forty years of working so many seniors seem poorly positioned to live in retirement?
We know retirement is coming (if we are lucky), we know inflation will always be with us, we know someday a spouse or partner will have to live on their own, we know taxes are a real thing living in a large society. We know or should that Social Security alone does not provide an adequate income.
I say we know all that, but might it be that many people don’t know or choose to ignore or apply wishful thinking? I did a little research and found that people often avoid planning for retirement because it feels abstract, complicated, and easy to postpone. Immediate distractions may be short-term financial pressure, lack of clarity about how much they will need, and the assumption that they can “figure it out later” or keep working indefinitely.
Some people are naturally more future-oriented because they find it easier to tolerate uncertainty, delay rewards, and think in systems rather than immediate events. Others are more present-focused because their environment rewards quick wins, and because the future feels too uncertain to plan around confidently. And some are so presently consumed with money issues, the future is not considered.
All this is a big mistake of course as the HD community knows well. For me, concern for the future has always been as strong as concern for next month. Perhaps too much so at times.
What is it that allowed you to plan and act in your long-term best interest?
The building trades in my area are heavily unionized. The employers have agreed to provide defined benefit pensions. Additionally, the contractors provide contributions to supplemental pensions based on hours worked. Of course, many non-union employers provide good pensions as well. Such employees are lucky to have other people looking out for them.
Left to their own devices, individuals don’t do nearly as well. The challenge is how to help those who don’t seem to help themselves. Auto enrollment in defined contribution plans is a good start, and the availability of income annuities inside those plans is also great.
How about school? We don’t expect kids to master readin’ writin’ and arithmetic without formal education, so why do we expect young adults to know about personal finance without being taught in school?
For me it was a combination of two related things. First, poor role models (my parents) and wanting to NOT be like them. Second, being a fundamentally anxious person by nature. I wanted to provide a more secure upbringing for my kids than I had experienced. I am not a risk-taker when it comes to finances. So being prudent about the future, including our retirement, fit right into all that.
Great post Dick! Growing up in the 1950’s, my mom got me started on the ‘savings kick’ by opening a savings account at our local bank, where I’d insert ‘dimes” I “earned” through chores (cleaning, painting, mowing the lawn, washing the family car, etc) into a passbook. When it got filled, I’d deposit it into my passbook account. Fast forward decades later, I continued that habit by maximizing contributions to the company 401k plan, lRA’s, and investing outside the retirement plans. We ‘did without’, as my grandparents and parents had taught me, until we actually needed and could afford things. That lifestyle allowed us to retire when the opportunity came around, and worked out perfectly for us. I can’t understand how people today go into deep debt to purchase frivolous items and services that aren’t really needed, and don’t save, care, or plan for their future. I totally agree with your financial philosophy presented in many of your past and ongoing articles on Humble Dollar! Great work!
Dick,
I will address the first part of your post. Many people are truly living paycheck to paycheck due to various factors. However many that claim so:1) don’t understand the difference between wants and needs that translates to living within their needs, and/or 2) do not know how to delay gratification.
Dick, this is a favorite topic of yours, and it’s one that I think about as well. For a number of years, I intentionally tried to tactfully open the retirement planning conversation with younger folks, with mixed results. A few appreciated the effort, but many shied away from the subject. These days, I still look for opportunities to be helpful, but I try to pick the moment more carefully. And I’m trying not to be bothered by the fact that I know some folks that are close to me are on a path to a dim future.
Your comment about your concern for the future as well as present strikes a chord. I often think about my activity in those terms, and try to devote effort and time to each, not only in finance, but also to health, relationships and so on. I fall short of being a wonderful example or how to achieve balance, but I organize my thinking along those lines. I know we are not unique, but there are many who miss the future planning part.
Research centered on personality traits is interesting, and may shed some light on the answer. Here’s a lay article on conscientiousness, the helpful trait that drives us to do what we ought.
You’re right, it is a favorite topic, perhaps a slight obsession. I spent nearly fifty years of my life trying to get a workforce to focus on this and other related areas of insurance and financial protection with limited success.