Have you ever wondered why you don’t save more for retirement? Or why others who you know don’t? If saving for retirement is so important, why don’t we do more of it, or even do it at all?
I’ve come up with a handful of reasons, and all have to do with either personal attitude and preferences, or with life circumstances. Sometimes we just have to overcome ourselves, and other times we face circumstances that limit our efforts.
1. It’s not a goal.
Have you ever known someone who has weak career aspirations? What about those who refuse to take care of their health, no matter how bad the report is from the doctor? The fact is, people have all sorts of desires, preferences, and taboos in their lives. For many people who do not save for retirement, it simply isn’t a goal in their lives.
It may not be a strategic miscalculation either. People simply have different objectives in life. Take for example a person who is so deep into the work they do that they pay little attention to anything else. It might be a self-employed person completely obsessed with building the world’s best mousetrap. It isn’t lack of money, but rather the result of an all-consuming focus in a different direction.
2. Fatalism.
A person can have such a dim view of the future that they fully expect that the world will end sometime in the future. They can also be so pessimistic about the state of their health as to have no expectation of living long enough to retire. A person with such a depressing outlook on either the world or themselves can easily adopt a what’s-the-use attitude. They believe there is no point in preparing for something (retirement) that will never happen.
Less dramatic, but equally damaging, are those who have very little saved or don’t begin saving until late in life. They may either minimize their effort, or even abandon it altogether, feeling that it will just be too little, too late.
Less obvious – but still very fatalistic – are those who feel that they need to enjoy life now since they have no guarantee of the future. They may even earn a lot of money, but spend it all on living in the moment instead of saving for the future.
3. Excessive optimism.
Excessive optimism is at the opposite end of the spectrum, but it can do equal damage. A person could fail to save adequately for retirement (or even to save at all) with expectation that something great will happen in their lives that will eliminate the need to prepare for retirement.
Here are some examples:
- I’m going to be rich, I don’t need to prepare for retirement.
- I can earn 20% to 30% in the stock market – and don’t need much time or much money to prepare for retirement.
- I’m going to inherit money so I don’t need to prepare for retirement.
- I’ll sell my house (business, coin collection, farmland, etc) and that will take care of my retirement.
- I plan to marry money/my spouse is rich.
In a person’s mind, each of these assumptions could eliminate the need to prepare for retirement. The problem is that each relies on little more than a hope, a promise, or a future event that cannot be guaranteed.
Still another example are people in their 20s and early 30s. Because they have so much time before retirement, they may not save for it, thinking they’ll have plenty of time to make it up later. The problem with this thinking is that life tends to get more complicated as you get older. The delayed retirement planning may never happen as hoped.
So far we’ve talked about the lack of retirement savings resulting from personal choices and preferences. Let’s take a look at a couple of reasons that have nothing to do with preference.
4. Lack of sufficient income or job stability.
It’s one thing to steadily save for retirement when you have a stable career that includes a lifetime of employment in jobs that pay a solid living wage (or better) and offer complete benefits. However not all people are employed in such careers.
Millions of people are employed in fields that are low wage and do not offer benefits. Think of the people who work in the retail and hospitality industries. It’s tough enough to live on what you earn, let alone setting money aside for the future.
Millions more are employed in cyclical businesses, such as the real estate business or the building trades. Those are boom-or-bust industries, where workers are often forced to live during the busts on the money they saved during the booms. It can make for erratic and inadequate retirement savings.
The self-employed can also be challenged when it comes to retirement savings. Though many people who run their own businesses are extremely prosperous, there are many who are in businesses that are subject to wild swings in income. Like those in cyclical industries, what they accumulate during prosperous times can disappear during slowdowns.
5. Life gets in the way.
Even if you do all that you can preparing for your retirement, life can get in the way of your best intentions. A career crisis or business failure late in life can not only stop retirement contributions, but it can also force you to make early withdrawals in order to survive. A medical catastrophe could have the same effect at any point in life.
There are also events that pertain to dependents and other loved ones. The need to care for a sick, crippled or troubled family member on a long-term basis could change your entire financial plan. Retirement contributions may have to be eliminated, and all assets used in the care of the loved one.
Do you see yourself in any of these? If one of the first three are the real reason for not saving for retirement, you can do something to change it. If it’s one of the last two, you can only do the best you can.
Can you think of other reasons people don’t save (or save enough) for retirement? Leave a comment!
The preparing for a pension is a roller coaster. My brother was in public service and he saved at least 15% for 38 years. He was frugal. Most of his investments paid something, not a lot (stocks, annuities, IRA, Roth, advice from several investment professionals, etc. ). He cashed out before the crash. Now retired, he has 1.67 million cash on hand that was drawing 5% in the bank. Nice, but 80% of that money is principal. Now he must scramble to get .8%. Then there is his public pension that is very nice, but earned public pensions are now under attack and no one knows how that will end. He is so much better off than a lot of people, but he still lives in a world on uncertainty where he can go from riches to rags without taking any kind of a chance. Pensions and banks are considered not to have risk. How can two forms of ultra conservative vehicles change so dramatically? ( That was a rhetorical question.) The sellers of investments say the yield from annuities etc. will be so much better years from now. How is it that my brother’s 30+ years of diversified investing with RISK had a yield not much better than CDs, yet investment counselors always claim to pay so much better in the future. When the future comes, well then things have changed. Investments all warn, “May lose principal.”
The guy across the street was worth 10 million in land and now looking at bankruptcy.
I have more stories like that. But, I will now tell you a story I don’t have. I don’t know one person in my middle class life that actually cashed out and is just thrilled because he/she invested in other than their own business.
I feel investing is like going to Vegas. Always talk up the wins and then bet it again only to lose it all. I’ve actually been on return airplanes from Vegas asking people if they had more money now than when they arrived. I took a limo from Vegas to the airport and the chauffeur said he drove the limo for 7 years. I asked if he had ever taken a winner to the airport. He had to think and finally said, “No.” I think investing is very much like that.
The difference between Vegas and investing is very clear. Vegas is not riddled in scandals like C Goldman Sachs, AIG etc. Vegas will never be “too big to fail.”
There is a yacht docking dilemma in Florida. Most of those yachts were not bought with investments. They were purchased because the owners were the ones that sold investments. A little tongue in cheek here.
OK, don’t argue with me unless you cashed out. Paper profit is not profit.
Granted, there will be some exceptions like Martha Stewart that knew when to cash out and she served a few years in prison for it. Our own Congressmen as of 2009 were 20% richer because insider trading, until recently, was not illegal for them.
By the way, I cashed out with my brother and did OK as well. I’m not bitter. This is just how I see the investment picture. If I had it to do all over again, paper investment would not be of interest. I know now that I profited from my investments not because of great planning, but but God was watching me.
My savings are not and never will be attached to any account regulated via govt. He who giveth also taketh. I will keep that leadership with Christ alone.
Kevin, I can relate to all of your points, and I’ve thought them at one point or another in my life. I think your number 1 point is the number 1 point. You’ve got to make saving for retirement a goal that you plan for and act on.
I fit in the last two for the past decade probably. I somewhat don’t buy into the idea of retiring. I didn’t spend all my life to save money to suddenly quit doing anything that gives me dignity. I plan on producing something out of my breath until my last second. Ideally, my first thing is to save and that’s tough since I do fit into the last two categories. I’m in my early 40s. Do I panic? At times, but like the article says, I’m doing the best I can…
Or am I? I put myself into too much debt and I don’t accept defeat easily so everyday I brainstorm and pray for an answer as I continue to put forth my best effort to create fruit.
Kevin, you present a good list of reasons why many don’t save enough for retirement. I also see point #1 as the most important, but I would alter it slightly. Many people don’t make saving a high enough priority in their list of goals to accomplish. Too many expect the government or their pension or dumb luck to take care of them in their latter years. Nothing beats consistently spending less than you make and saving/investing the rest for a long period of time.
Tom, I definitely agree with your comment! I just did my dad’s taxes a few weeks ago. He retired four years ago from working in a factory his whole life. He lives on a meager pension from his company and social security, and saved nothing at all for his later years. He can definitely survive on what he gets, so long as the pension and the government keep paying, but that’s about it.
With govts world wide printing (QE) to infifnity the UNIT VALUE of each dollar is greatly decreased. Look supply and demand determines price of everything and all intervention does is TEMPORARILY change that. Every dollar in savings ARE losing value. There is no end in sight of govt spending, taxing, borrowing, printing. Saving in dollars is foolish your just getting robbed. Saving must be in real tangible property or be subject to QE thievery. Further Uncle Ocommy is schemeing as I write to take all 401ks and the like from all and throw it into soc sec. I’m holding my gold coin and still buying silver coin on the dips. The fed res note is on a one way track to destruction and not with my wealth thank you very much!
These are all reasons I have heard from clients who look for financial advice as they realize retirement is approaching faster than ever. Like other have pointed out, really the recipe is quite simple – live below your means and save the rest. Then how you invest “the rest” depends just on the level of risk you can stomach. It’s really quite simple.
I’ve heard quite a few people say they don’t believe retirement is Biblical, so they say they plan on working their whole life so there is no need to save. Many times I believe that may be a cover or excuse for other reasons. While people may have different feelings on the matter, I believe that they should still be thinking about their family they would leave behind and not leave them scrambling the rest of their life.
Yes, I have that problem too. I’m 22 years old, but I read a portion in the bible where a man said that he would store away his posessions and relax for the rest of his life. God told him that he was foolish and would die that night. I want to open a Roth IRA as soon as possible, but I don’t want to do what God doesn’t want me to do. Which is right?
Although I am still young (22), I tend to think a lot about the future. After discovering that retiring is not really a biblical principal (the Bible is basically silent on the idea) and has only been an idea for the last few hundreds years I have grown weary of the thought of a retirement savings. Not to say I won’t save or prepare at all, but I think sometimes it becomes a bigger deal then it is. Thankfully this earth is not my home, I am simply passing through and the Lord will care for me until then. He is not limited by any earthly situation and my childlike faith motivates me to trust my Father to care for me and helps me keep an eternal perspective instead of thinking I should plan for staying on earth forever. I hope this encourages everyone to look at the big picture, hope is never lost! Praise God!
When the Bible was written, the life span was 40 or so years. There was no compound interest and so forth. The Bible is also silent about cars and airplanes. Do you hesitate using them? There may also be a point where you must retire. I know school teachers lose tenure at age 70 and are then gone from the profession. Yes, I know one teacher that worked 60 years. But she had vast amounts of money and bought the school a swimming complex. There is also the possibility of poor health. Just because you prepare for retirement does not mean you must retire. It just gives you an option. This recession will change things for many generations to come. Money gives you options. You may always will your money to a worthy cause.
Are you all Crazy? Did you not ever here the term that God helps those who help themselves? God is not going to take care of you in your old age, you are
Frankie, that is not in the Bible. Yes, I’ve heard it but it isn’t biblical.
Too many people live beyond their means .. the house, car, vacations, clothing, health and or recreation clubs. Purchases for their children .. cars, clothing, education, and even help with the purchase of a home. It’s ok if you are financially sound .. but most are not, when it comes to savings for retirement
Another thing the Bible is silent about is the high cost of medical care. I read some place that even with good insurance, the elderly may expect to pay $225,000 out of pocket. We will see how Obama Care takes care of that. But, since the post office, public pensions, schools, most governments, etc. are broke, I can’t see Obama Care being much help for a number
of people.