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Why do many folks fail to save enough for retirement?

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AUTHOR: Jonathan Clements on 6/05/2024
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Lizbeth
4 months ago

My dad told me to always save something, pay yourself first. He also said as people get older and move along in their careers you should be able to save more as the kids are no longer an expense. Well, those days are long gone. Now we have people having families at later ages, young adults not gaining independence, let alone financial independence. And certainly the long storied career with one company is a bygone thing. We listened to my dad and started our 401ks with our first jobs. We were lucky to both work for companies that offered them in 1985. We budgeted, always having room for saving/investing as much as possible and little vacations. We may have lived in a fixer upper and not a great neighborhood originally but were able to move up 7 years later to something nicer but not extravagant. I had friends and relatives who I know felt that we must not be doing well. I guess to them outwardly, we were behind. My husband died unexpectedly when he was 46, I was 44. We didn’t have children. I have to admit that although there is no price you can put on family, not having kids probably made it a bit easier for me financially. Fortunately, my husband had insurance and I got a bit of inheritance from my father. It’s allowed me to stay financially independent. I attribute my financial habits to my father’s good advice and role modeling and to being a great husband/wife team on saving and investing. Also credit should go to a guy named Bob Brinker and other financial experts like Jonathan Clements, who dedicate their lives to educating others in the hopes we can live our best lives. Money isn’t everything but it can help to provide peace of mind.

Jim Wang
4 months ago

I think the future is something that seems so far away and with all the things you have to do today and this week, it’s easy to push that to the back burner. Why worry about 10 years from now when you’re just trying to get through this week?

What sucks is that retirement is the type of thing where you benefit from preparing today, with compound interest and all. So when retirement comes, you wish you would’ve prepared for it when you were worrying about schedules and meetings and all the worries of the day.

Matt Morse
4 months ago

Others have said it. Many people cannot see beyond the present and cannot delay gratification into the future.

1PF
4 months ago

Even if having enough money to invest, feeling overwhelmed: no idea how to begin or even where to find a trustworthy source on how to begin, and thus fear of making a mistake and losing the money. Then the years go by…

Amy Reed
4 months ago

Maybe I am naive, and maybe I am looking at the wrong generation, but when I think about the retired people I personally know — work friends who retired some years ago, my parents and their close friends, and my aunts and uncles, and the people in the rural neighborhood where I grew up, and the neighbors in my building where I now live downtown — they all actually are very comfortable in their retirement. Many of them travel widely or have engrossing projects such as organic vegetable gardens. One adopted a child in retirement. One volunteers at a prison. One went to explore China for a month. I have read and heard several financial writers (whom I trust) say that people in general are not saving enough for retirement, and that very likely is true. I just thought it was interesting that when I stopped to ponder this question, I couldn’t think of anyone whom I personally know who is in this boat of “not having saved enough for retirement.”

Klaatu
4 months ago

Too short a time horizon.

Catherine
4 months ago

Unwarranted and underexamined optimism and pessimism. Optimism that life will work itself out okay, pessimism that one will live long enough to have a robust body and mind at retirement age and need money when unable or uninterested in working longer.
The actual experiences of their extended family and their friends’ families. Did their parents lose big money in their retirement plans, whether through reactions to market events (dot com bust, housing market correction) or through corporate restructurings (too numerous to note)? Who died early from cancer or heart disease or other bad luck? Where did grandma/grandpa spend their last years, and why?
Distrust of finance markets and the people who make their money through selling products to less sophisticated people. Some of these are “superstars” of fleecing the small investor and even professional pension funds. (The four-part documentary on Bernie Madoff informative and the movie “Dumb Money” which explains the Roaring Kitty phenomenon.) People believe they aren’t smart enough or protected enough from the bad actors in this space.

Dan Smith
4 months ago

I wouldn’t argue with any of the comments below. I would add an inadequate knowledge of personal finance as well as an inadequate interest in obtaining adequate knowledge. I used to subscribe to Kiplinger’s, Barron’s, and Playboy (don’t judge me). I used to make old issues of all available at the union hall. Which magazine do you think was the only one that ever got picked up?

Mark Eckman
4 months ago

Two words – Credit Cards.

While payroll deductions make it extremely easy to save and invest each paycheck, it is just as easy to pay with a credit card and only pay the minimum at the end of the month. Unfortunately, compound interest works both ways. I have yet to find investments that pay rates higher than the credit cards charge.

Bob Smith
4 months ago
Reply to  Mark Eckman

All comes back to discipline.

Philip Stein
4 months ago

I can think of three reasons why some people may fail to save for retirement (undoubtedly there are more):

1. Living beyond your means
This runs the gamut from “keeping up with the Joneses” to living in a more expensive neighborhood so your children can attend a better school. If you live beyond your means, you likely do not have spare cash to direct towards savings.

I’ve heard of people engaging in what they refer to as “retail therapy,” shopping as a means to relieve the stress of a tough week at work. Money that could be saved is now spent on things with no lasting value.

2. Failure to understand the power of compound growth
I would hope that students completing any personal finance course would come away with a better understanding of this phenomenon and be ready to embrace it.

If you believe that money grows arithmetically, rather than geometrically, you’ll likely conclude that building a million-dollar nest egg is impossible, so why bother?

3. Inability to adopt a long-term perspective
I’ve known younger people who feel that life is short and it’s important to live for today while you’re vibrant and healthy. After all, you could be hit by a bus tomorrow. That means travel and extreme sports now with no thought about the future, which will somehow take care of itself.

I’ve heard young people proclaim that seniors in their seventies and beyond are mostly decrepit and unable to enjoy life. Why bother saving for a distant retirement if you’ll be frail and housebound?

I knew a young woman who lost several family members to cancer and was convinced that she would not have a long life due to her genetic inheritance. Not surprisingly, saving was not a priority. She assumed that she wouldn’t live long enough to retire and would work until she died. (I’m happy to report that she recently celebrated her 60th birthday and remains healthy. Unfortunately, her savings are too meager to allow her to retire in the next few years.)

smr1082
4 months ago

Many have difficulty thinking long term with “instant gratification” and desire to “keeping up with the Joneses” driving their spending decisions and curtailing savings. Social media is also fueling comparison culture.

Our company offered competitive salaries and pension. But younger employees wanted higher salaries and ended up changing jobs every 3-4 years. They missed building a retirement nest egg aided by power of compounding. Employers should do a much better job of counseling employees on financial planning.

Jeff Bond
4 months ago

I think that most folks, when they are young, don’t understand the concept of compounding. They put off saving until “tomorrow” but tomorrow never comes. What they don’t realize is that a little bit saved early can really grow with compounding over decades.  

Jeff
4 months ago

Part of the issue is that it is difficult to visualize an older “self”, especially one that may not be as vibrant as the current internal vision of who we are now. The other reason may be that the math for compound growth shows small gains when first accumulating, thus discouraging early savings.

Last edited 4 months ago by Jeff
Marjorie Kondrack
4 months ago

Most people don’t give enough thought that retirement comes without a paycheck for 25 to 30 years. Pensions are becoming obsolete and everyday expenses are the top barrier to saving more for retirement. Inflation and taxes will continue to take a toll on the average person’s
ability to save.

Sanjib Saha
4 months ago

I suspect that some people might have difficulty in accepting that they’d get old someday and won’t be able to work anymore. In the early years of my career, I struggled to picturize myself retiring from my work. I’ve been a saver all my life, but I used to save for better lifestyle and rainy days, not necessarily for retirement. Thankfully, I came to my senses before it was too late.

Ken Begley
4 months ago

Time gets away from them. They have every intention to save but the years seem to fly by and suddenly you are old and nearing retirement.

R Quinn
4 months ago

Limited ability to think and plan ahead. Limited ability to avoid instant gratification and set spending priorities.
A naive view about how close the future is.
Not having money to save is rarely a valid excuse.

Dan Smith
4 months ago
Reply to  R Quinn

Oh c’mon Dick, how do you expect me to save for retirement and pay for this new pickup truck at the same time!

R Quinn
4 months ago
Reply to  Dan Smith

You could downsize to a Cadillac SUV😎

steve abramowitz
4 months ago

I would say several reasons. One is our society’s pressure to accumulate things “now.” I think that pressure is particularly acute during the “making-it” phase of mid-adulthood. Along with that comes our difficulty, probably part biological and part psychological, delaying gratification.

When you’re young, retirement seems remote. Also, society promotes it as a time of pleasure and contemplation in return for years of hard work. We downplay the need for financial well-being in the event of health reversals and the needs of our adult children.

Some of us may be especially vulnerable to delays in funding our retirement. The person whose parents were of modest means, but whose relatives or neighbors were more affluent, may be prone to compensatory spending. When I was a teenager, a newly licensed friend who lived in an apartment was driving me around in his father’s new Oldsmobile. He said, “Steve, you know, don’t you, that an Olds is a poor man’s Cadillac. That’s why we bought it.”

Andrew Forsythe
4 months ago

I think for many folks the idea of “retirement” just seems too far away to worry about. Many have a full plate of financial challenges right now, and the idea of allocating resources to such a distant dream doesn’t seem practical or even possible.

This is one more area where some basic financial education, in high school or college, could be helpful. If you show people the numbers, e.g., how much in savings they’ll need to support a certain withdrawal rate, along with how savings can compound over time, it might, just might, stick with them as they enter their working, and hopefully, saving years.

Mike Zaccardi
4 months ago

While there is ample empirical evidence on major expense categories, my hunch is that many people fall victim to “keeping up with the Joneses.” This mindset of trying to match or exceed the perceived lifestyle of others may not hurt much in the short run, but over the long haul, putting off saving and investing for another day denies the powerful compounding returns from working in your favor.

I also think it’s a challenge for a lot of people, including myself, to adequately gauge the right amount of insurance and what coverage to get. A bad health outcome, lawsuit, or parents who need expensive long-term care, all could cause an otherwise up-to-snuff savings strategy to go up in smoke. Failing to properly insure against such risks can derail even the best-laid financial plans.

But big picture, keeping the major line-item expense categories in check is key. I’m talking about housing costs, your choice of vehicle, planning for the expense of having children, investing in your health (including mental health), and optimizing things like retirement savings and taxes. These areas often represent the largest expenditures over a lifetime and require careful planning.

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