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