Saving for Retirement: Giant Problem for Most Americans

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I’ll be updating this post weekly with new content at the top. To read this week’s update, start here with Part II: The Right Plan. Scroll down to Part I to read the earlier posts in my series…

Part II: The Right Plan

Is your saving and investing plan going to fund the lifestyle you want? This is the ultimate question, and at the core of most long term savings, retirement funding, aka, financial freedom. In late midlife when we assessed whether our years of saving for retirement were going to generate enough income for us to live the way we wanted, as you may have read here.

As I wrote in my last article series, with years of very low interest rates, you can still have a significant nest egg, but little income. Millions of investors are in this situation. In this post I’ll share some suggestions for getting a realistic handle on the lifestyle that your savings will be able to fund based on your current path. The earlier you get started, the easier it is to make financial freedom a reality. This is because you have the gift of time on your side.

Bravely See Where You’re Headed with Your Current Strategy

Yes, predicting the future value of your retirement savings is guesstimating, but it is way better than having no idea how much your savings will grow. This further supports creating income streams before retirement to fuel positive cash flow creating that elusive extra money at the end of the month since your financial future is based on estimates. Plus, if you increase income way before retirement, you can increase the amount you’re able to save before that desired financial freedom date.

Again, if you haven’t estimated the future value of your current savings plan, you’re not alone. Here are the facts the studies revealed in my research on how people are saving for retirement, just so you don’t beat yourself up too much.

• 54% of Americans have no idea how much money they’ll need for retirement (1)
• 74% of Americans feel that they should be doing more to prepare for retirement, and 40% say that they don’t know what to do to prepare. (1)
• Only 48% of workers said they have even tried to figure out how much money they will need in retirement. The percent of people who do try to see how much they’ll need increases with income, education and assets. (4)

A Simple Solution

Have a Plan

The Retirement Confidence Study of 2016 found that only 21% of Americans were very confident that they would have enough money to live comfortably during retirement. (4) This was a positive increase over study results from 2014 and 2015. The study revealed that the biggest financial improvement was seen by those individuals with a plan. I know that when I plan, across the board in all areas of my life, I sure get better results.

One reason women avoid having a plan is because it seems like it needs to be perfect because it’s so important. Again, plans are based on estimates and likelihoods. Don’t wait for a perfect plan because it doesn’t exist. I’ll write more about how to create a plan in an upcoming article, or click here if you want me to help you.

Have a Core Investment Account and…

Investors tend to think of investing as completely separate from income. Most financial planners and financial advisors exclude the important income element in overall wealth planning. Instead, think of having a core investment account, and also having alternative income streams that help build wealth, while lowering taxes. This additional income funnels into your wealth accounts.

Create New Tax Friendly Income Streams

You may have read my recent series on the retirement income streams that we researched and created when we realized that we weren’t on track for our money to outlive us in late midlife if we lived off our investment accounts. I now see new income streams as a revolutionary solution for boosting retirement savings before retirement, and providing income during early retirement. First, creating anything is way more appealing than saving, at least for me it is.

Don’t think of income generation as work. Instead, think of it as creating new income streams that flow right into your accounts. That feels a lot more fun and fulfilling than saving, which feels constricting. Second, savings is limited, and income is expansive. (How many coupons can you clip? And do you really want to?) Saving for retirement is super important, don’t get me wrong. But if you add a couple of new and sustainable income streams, you can catapult your wealth accumulation efforts.

Options and Opportunites

Interestingly, the Fidelity study sited below suggests that baby boomers, who have little time to remedy savings shortfalls, work for more years. This can be a great option for someone who truly enjoys their work, but the lifestyle can be demanding. The income is all taxable. My approach is to make more money before retirement, and create tax friendly new small business income streams that are sustainable during retirement. Once you get the income ball rolling, other opportunities surface because your skills have increased, too.

This plan is supported by the fact that 67% of workers plan to work for pay during retirement anyway. The reasons retirees gave for this prolonged work were enjoyment, a desire to stay active and involved, and job opportunities that surfaced from being out there. Of course, wanting more money was another common reason for working during retirement. (4) The point is that, in general, most people enjoy being productive, making money, and contributing their skills and talents. Given this, why not maximize the benefits of this natural drive to enhance your wealth?

Saving For Retirement: The Bottom Line

Repeated studies consistently show that a large majority, about 80%, of Americans have not saved enough money to maintain their lifestyle during retirement. A significant percent of people (55%) won’t even be able to pay for food and health care. If you’re reading this article, you’re way ahead of the crowd, because you’re being proactive about your financial future.

Think in terms of the very next step for you to boost your saving for retirement. What’s the next step for you? You know what it is. Take it.

Part I: Money=Taboo Topic

Does saving for retirement always get pushed to the side burner for more urgent or desirable spending? Or do you have a nagging fear that you won’t have enough money to live how you want during retirement no matter what? If you do, this is something you probably haven’t discussed with anyone since money is still usually a taboo topic.

The Vague Thought Approach

Or maybe it feels better to keep a vague idea about your retirement strategy than to deal with exact numbers. Sometimes not knowing feels better than really knowing. And like me, you may remind yourself that there are no exact numbers anyway when it comes to investing your money for the future. There are only probabilities, estimates and unfathomable thoughts about how long you’ll live. Who wants to go there?

Then there may be the regret and the accompanying shame that you’re just not where you want to be financially, the missed opportunities, and the unforeseen damaging stock market declines.

Americans & Retirement

The truth is that if you aren’t on track to be able to support yourself throughout your lifetime, you’re not alone. You’re part of the overwhelming majority. Results from different studies led by major financial firms in 2015 and 2016 reveal how Americans are handling saving for retirement.

• Only 17% of women felt they were on track to replace their income to desired levels in retirement. (1)
• A huge 80% of employees say they are not on track for retirement (3)
• Only 24% of working baby boomers think their savings will last their lifetime. Much of the concern stems from rising health care costs. (5)
• Only 29% of employees aged 55 to 64 (boomers) were on track for retirement, and only 19% of those aged 45 to 54 were on track. (3)

Based on various studies that I researched for this article, the numbers show that only around 20% of Americans are on track to reach their retirement goals. Not only this, but 55% of Americans are in danger of not fully covering essential expenses such as housing, food and health care. (2) This is food and shelter that we’re talking about, those basic needs, the drivers of fear around money.

The Scary Truth

Not having enough money throughout life to pay for basic needs is scary stuff. I know my parent’s depression related fears affected my own feelings about money. Maybe my fear is even bigger than yours, and this fear is what fuels my passion for researching, writing and teaching about money. Fortunately, our fears and weaknesses often fuel the very drive that saves us. This drive led me to develop some out of the box enhancements for my own retirement savings in late midlife. I’ll share a few tips that helped me in my next article in this series.

For now, I mainly want you to share with you that saving for retirement is a real problem for most people, based on the research I found. It helps to not feel alone in our challenges. The flip side of the 80% is that there are people that are on track to fund their retirement lifestyle. Here are a few suggestions based on my own experiences to be in the 20% of people that are embracing their financial journies:

Saving for Retirement Suggestions

• Don’t beat yourself up over where you are right now. As you can see from the facts I’ve shared here, about 80% of Americans are not on track with saving for retirement. Knowing you’re in the majority means that there is good a reason for this problem. It may be the result of mindset conditioning, limited thinking, or lack of financial role models.
• Choose to be among the 20% that are choosing to be exceptional with their wealth accumulation.
• Replace regret with hope and anticipation of doing a better job.
• Choose to be proactive about growing your money starting right now. Pause, and promise yourself the gift of financial independence. Know that you can support yourself for life if you choose. You can. Millions of people are, so, why can’t you?
• Identify the financial area that needs your attention now. It almost always relates to one of three areas: paying more attention to your spending, increasing your income, or overseeing your investments better. What is the area calling for your attention right now that will have the most impact?
• Pinpoint the very next step in the area you have identified as where you should focus now. Think in terms of taking the very next step, then move to the next step once you’ve completed the first step. While the entirety of saving for retirement feels huge, the very next step is always easy to identify and doable. It’s the one that you know you need to take now. It may keep you awake at night, or the task that nags you when you’re trying to enjoy a clearance sale.

Sources:              

1. Retirement Preparedness Study done by Harris Poll for Prudential 2016
2. Fidelity Investments Retirement Preparedness Measure
3. Retirement Preparedness Study Financial Finesse 2015  
4. 2016 Retirement Confidence Survey, Employee Benefit Research Institute and Greenwald & Associates