Why aren’t Americans aren’t saving for retirement?
Recent months have shown us just how fragile the status quo we take for granted has always been. It’s shown us that no job is that secure. No business is completely bulletproof. And that no future is as certain or secure as we’d like to believe.
Everything has changed, except life’s two constants… death and taxes. The current administration may want to return to normal. However, there’s many of us who should take the time to reassess, to take stock. To think about how precarious the future is, and the ways in which they can stack the deck in their own favor by laying the foundations for a better tomorrow today.
For many, this means taking control of their finances and adopting a forward-thinking attitude about money. This includes saving and planning for retirement. Yet, there are many Americans who give little or no thought to what will happen to them in retirement. Indeed, it’s estimated that over 40% of workers aged 18-29 in the US have no retirement savings. A further 26% of Americans ages 30-44 have nothing saved for their retirement.
At a time when we’re all thinking harder about the future, perhaps it behooves us to consider the reasons why. If you have yet to save for your retirement, what is holding you up? In finance, as in all things, failing to prepare is preparing to fail.
Most Americans don’t have access to a traditional retirement plan
Working life is different for many of us to how it was for our parents. If you have parents who are nearing retirement age, it’s likely that they’ve been paying into their 401(k) for decades. The world of work is changing. Corporations are always looking for new and inventive ways to avoid burdening themselves with the expense of workers’ benefits.
As such, many corporations have come to rely on self-employed subcontractors rather than employees. According to a 2017 report from the Bureau of Labor Statistics, there are over 50 million Americans working in the gig economy. That’s a lot of people who don’t have the access to a traditional retirement plan like their salaried counterparts.
Still, that doesn’t mean that they don’t have options. If anything, these people have more options, because they can choose the mechanism by which they can save rather than taking whatever is provided by their employers. Accuplan is a good example of this. You can choose to invest in your retirement in a number of ways from a self-directed IRA to invest in precious metals. It’s just up to you to be proactive and set aside funds to start saving for retirement now.
Americans have higher priorities
Of course, saving for retirement is often easier said than done. The self-employed and gig workers are likely to have no idea where their next paycheck will come from.
Many workers in the US simply have higher priorities, and it’s easy to see why. After all, we’re surrounded by messages every minute of every day telling us to buy products. We have become workers so that we can facilitate being consumers. As such, many of us (especially those of us who are far from retirement age) prioritize cars, clothes and vacations over saving, assuming that there’s always more time to right the ship. Indeed, a recent study revealed that American workers care more about vacations than their retirement.
Too much of their income is spent on consumer debt
Careful budgeting and a healthy cash flow are essential for harmonious household finances. But many Americans have a cash flow problem. And it’s not necessarily because they spend recklessly. It’s because a large proportion of their disposable income represents debt repayments.
The average American household has several credit cards on the go, is paying off unsecured loans and is also paying off store cards and other forms of non-mortgage debt. Over time, these expenses can eat further and further into families’ income, making saving for retirement (as well as any other kinds of savings) untenable. As interest rates rise and rise, it’s easier for debts to veer out of control.
Consolidating your debts can help you to get debt-free faster, as well as giving you greater visibility and transparency when it comes to your household finances. A debt consolidation loan typically has an interest rate of around 10%. This is far more favorable than the rates on most credit cards (which are typically between 20% and 30%) and certainly more favorable than the rates on most store cards, cash advances, and payday loans. If your credit rating disqualifies you from a loan of this kind, you may want to look into a consumer proposal as an alternative to bankruptcy.
They overestimate what they can expect from Social Security
We’ve all bought into the myth that we’ll be more financially secure when we get to retirement age, and that we’ll be able to get by on Social Security alone. But rarely is this the case. The mortgage-getting difficulty, the high private rent costs, and rising living costs that should make homeownership feasible by retirement has become a daunting task. You can expect to still make mortgage payments (or even paying private rent) at retirement.
The average Social Security recipient currently collects around $1,360 a month ($16,320 a year) in benefits. Of this, more than 50% is overtaken by healthcare costs. As such, you can expect to require up to 80% of your current income just to get by in retirement.
They doubt they’ll ever get to reach retirement
Finally, there are many workers in the US who just don’t see retirement as a viable prospect. Many, especially those of the Millennial generation, assume that retirement (along with homeownership) simply isn’t a viable option for them.
One important thing to remember is that it’s never too early and never too late to start investing in your future. Whatever your income or circumstances, there are ways in which you can do a little right now to ensure that your life is a little easier in your golden years.
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