Our Financial Failings by Neil Irwin, Washington Post:
It has about $3,800 in the bank. No one has a retirement account, and the neighbors who do only have about $35,000 in theirs. Mutual funds? Stocks? Bonds? Nope. The house is worth $160,000, but the family owes $95,000 on it to the bank. The breadwinners make more than $43,000 a year but can’t manage to pay off a $2,200 credit card balance.
That is the portrait of the median American household as painted by the Federal Reserve Board’s Survey of Consumer Finances.
Saving for retirement is not complicated, it is just a matter of priorities. Most people care more about a Starbucks coffee each day (or season tickets, or new shoes, or a new car every couple of years or…) today than saving money for retirement. In a capitalist society we believe in letting people make their economic choices. The choices most of us make (in the USA) lead to the results above.
I think that choice is not a good one (but that is just my opinion – obviously not the decision of most making decisions each day). If someone doesn’t want to reduce their current expenditures they have options:
- Earn more money to allow both your desire for current purchases and savings
- Cut back your current expenses and increase savings
- Decide you will live well now and poorly later
- Hope that you will become much more wealthy later in life (get stock options with your company that does tremendously well, invest like Warren Buffett [of course you need at least some investment to start with and decades of time for this to work wonders], win the lottery, etc.)
Failure to save for retirement is not a complex matter. It might be that we don’t like the choices, but those are the choices. I think in reality most in the USA are choosing to live well now and poorly later (actually I just thought of another option, live well now and die early so maybe I am missing other options too). They may not voice their decision to spend now and not save as a choice to live well now and poorly later but that is what most are choosing (based on realistic future economic reality and their choices).
Savings for retirement is difficult mainly because of our trouble planning for the long term, it is not at all a complex problem. The fable of the ant and the grasshopper illustrates this point very simply and it is really that simple. People need to do a better job of applying the lessons from that story to their retirement savings.
Many choose to consume more and save less. That is their choice. But to assure a comfortable retirement most must save for it during most of their working life. I am worried that despite the vast amount of news stories and advice saying the same thing still few are doing so. And I fear many attempt to ignore the choice they are making by pretending that if they don’t think about their decision then they won’t be responsible for the decisions they make. Sorry, but I think the fable of the ant and the grasshopper (and all the more recent advice, news coverage, etc.) make that a wish to avoid responsibility without merit.
More sources of information on saving for retirement:
- IRA explanation and links to online resources – Roth IRA
- Dollar cost averaging
- Articles on Retirement Planning and Investing
- Prepare for a Gruesome Retirement by Selena Maranjian, fool.com
Comments
22 Comments so far
[…] In previous post: saving for retirement, we discuss the options for planning for your future economic security. Cutting back on luxuries is only necessary if you are living beyond your means (looking at your whole financial life). If you have incorporated the luxuries you want into a good overall plan, great, good job, keep up the good work. If not, figure our which luxuries you want to cut (or how you are going to earn more money). by curiouscat October 11, 2006 Tags: Saving, Financial Literacy Permalink to: I Want My Coffee […]
Your first goal: Encourage them to contribute enough to get the employer match, without worrying about sorting through all the investment options…
[…] This risk is something the government should address. The risk is to the economy at large, as well as having extreme consequences for individual investors. We need to do as much as possible to encourage retirement savings. Not providing government backing (such as provided by FDIC…) is a mistake. The funding should be similar to that for FDIC where member banks are assessed fees to cover the costs of the program based on the risks seen in that institution. […]
There are few investment opportunities as valuable as IRAs (tax sheltered retirement accounts) – nor many more critical to successful personal financial success…
“Nearly half of all workers saving for retirement have savings that fall short of the $25,000 mark…”
[…] but…). Another is that the “miracle” of compound interest. Those that actually saved enough for retirement often find their investments out-earning their spending thus wealth increasing yearly. This effect […]
Buy less stuff. Save more. Not a complicated plan
[…] Frontline World traveled to Uganda to explore the impact of microfinance and provide some great details on how Kiva is bringing economic opportunity to entrepreneurs. The site includes details and a nice webcast. It is great to see how people can connect directly using Kiva. And it is great to see how people can take small loans and some effort and financial literacy to make a living for themselves. The effort of these entrepreneurs to manage their finances would benefit many people in the rich world plan for retirement… […]
[…] It is a sad state of affairs. The country chooses not to sent aside funds for obvious future needs. Then instead of accepting the hole they have dug for themselves decides to tax their children even more to continue the spendthrift ways. I think we not only need to have politicians actually read the bills before they vote (they refuse to pass such a law) they need to read about the ant and the grasshopper. […]
These are important and helpful observations for anyone who is thinking about saving for retirement. I think, however, there is another factor making people reluctant to save or “invest” for retirement that goes well beyond such concerns as the stability of the markets, the willingness to save, and the unwillingness to sacrifice now in order to live better later. I think the real underlying issue is that people are not able to envision their retirement. The frequently ignored stepchild of retirement planning is envisioning one’s retirement and planning for a retirement lifestyle. If one cannot envision something, it is difficult to make a commitment to making sacrifices (even small ones, like a cup of Starbucks coffee) and saving or investing proactively.
In our society, we are taught to plan carefully for a career and for marriage and even for having children. We plan, we prepare, we study, and we work at achieving the goals we set. Millions of people have a career plan, many have a family plan, and many have a life plan. The challenge is that most people stop planning for life beyond the age of 50. Our society has become so youth-oriented that we tend to want to ignore the retirement years. The baby boomer generation is beginning to teach us that life after retirement will not be what it was for our parents. This generation will not go quietly into old age homes and quietly wait to die. This generation wants more from life in retirement.
Retirement lifestyle planning is, I believe, the essential first step in retirement financial planning. Again and again, in my coaching practice, I see retirees and people approaching retirement suddenly realizing that they can look forward to another 20 – 40 years of life. Once they begin to envision what their life can be after retirement, they can begin to plan financially to ensure the resources to support the lifestyle they want. The greatest challenge of retirement lifestyle planning is that people wait too long to do it. As this article points out, financial planning must begin earlier in life. Envisioning retirement and one’s lifestyle after retirement also should be happening earlier.
People who want to think about retirement lifestyle planning as the basis for retirement financial planning can find a wealth of resources on fireupretirement.com
[…] of the most important financial moves you can make is to start investing for your retirement early. This post is directed at those in the USA (but you can adjust the ideas for your particular […]
most people should pay down debt or save it…
Much of personal finance is not amazingly complex once you take some time to lay out the basics….
The most important thing is to start saving early and don’t stop and don’t withdraw any early. If you can’t afford to put in as much as you should then put in what you can, and increase it as soon as you can…
I agree it is very important for people to become financially literate and take the time to understand their retirement plans…
[…] we just acted more responsibly when times were good we would have plenty of room to absorb a temporary financial hit without the negative cycle […]
[…] money you don’t have (taking on personal debt) and not even having emergency savings and retirement savings lead to failed financial futures. Even though those in the USA today are among the richest people […]
Saving 10% of your gross income from the time you are 25 until 65 gives you a decent ballpark estimate. Then you can adjust even 5 or 10 years as you can look at your situation. It will likely take over 10% to put you in a lifestyle similar to the one you enjoy while working. But many factors are at play…
This is likely one of the top 5 most important things to know about saving for retirement (and just 10% of the population got the answer right). You need to know that you can safely spend 5%, or likely less, of your investment assets safely in retirement (without dramatically eating into your principle…
Building your saving is largely about not very sexy actions. The point where most people fail is just not saving. It isn’t really about learning some tricky secret…
[…] to our natures (saving for far away needs is not easy for most of us to do – we are like the grasshopper not the ants, we play in the summer instead of saving). This varies across the globe, in Japan and China they save far more than in the USA for […]
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