There's a reason retirement plans like IRAs and 401(k)s exist. Without independent savings, retired workers won't have enough income to pay their bills once they leave the workforce. Yet a frightening number of U.S. adults still aren't putting money aside for the future. According to a recent GOBankingRates study, an alarming one-third of American adults still have $0 saved for retirement.
But while that statistic may not come as much of a shock, you may be surprised to learn why today's workers aren't saving. Here are some of the most common reasons why Americans are putting off retirement savings -- and why none of them hold water.
1. We're prioritizing other things
It's hard to focus on retirement savings in the face of more immediate goals. If you're trying to buy a house, for example, it's natural to want to save for a down payment that you'll need in a year or two before you start stashing money that you can't touch for a few decades. But a large number of Americans are ignoring their nest eggs for far more frivolous reasons -- like taking vacations.
In fact, GOBankingRates found that some workers spend more time planning their upcoming vacations than they do planning for retirement. This takeaway is consistent with a recently released report from COUNTRY Financial, which found that Americans put vacations ahead of their financial future. In fact, a good 40% of workers aren't saving for retirement because it just plain isn't important to them. And that's a huge mistake, because if you don't start putting money aside for retirement now, you'll have less opportunity to accumulate a sufficient nest egg down the line.
Case in point: If you start saving $200 a month at age 30, and you invest that money at an average annual 7% return, then by age 65 you'll have $332,000 to help cover your senior living costs. Wait another 20 years to start saving, however, and you'll have just $60,000, which, over a 20-year retirement, gives you a mere $250 a month of income. And that's hardly enough to pay the bills, even when you factor Social Security into the equation.
2. We're spending our retirement savings on emergencies
In a separate GOBankingRates survey, 69% of Americans admitted to having less than $1,000 in the bank, while 34% owned up to having no savings at all. And that's a problem, because every working adult should aim to amass three to six months' worth of living expenses in an emergency fund. Yet more and more of us are cashing out our retirement savings to cover immediate expenses -- a move that can have serious consequences.
Any time you remove funds from a retirement plan to cover a near-term expense, that's money you won't have available in the future. Not only will you lose out on that principal, but you'll also lose out on any growth it could've achieved. That's why it's critical to keep your retirement and emergency savings separate and stop falling back on your IRA or 401(k) to address unplanned bills. (Incidentally, unless you happen to qualify for an exception, taking an early IRA or 401(k) withdrawal will also result in a 10% penalty, so that's another reason to leave that money alone.)
3. We don't all have access to a workplace retirement plan
A 2016 Wells Fargo study found that 41% of workers don't have the option to participate in an employer-sponsored 401(k) plan. And of those surveyed by GOBankingRates, 19% said the reason they haven't been saving is that they aren't offered a plan at work.
While it's true that 401(k) plans are among the most convenient ways to save for retirement, not having access to one is hardly an excuse to neglect your retirement savings. Anyone with earned income has the option to open an IRA, which, by the way, will likely offer a wider range of investment choices than the typical 401(k). And if you're not sure how to get started with an IRA, you can review some of your options right here.
4. We don't think we'll need independent savings
A big reason why so many Americans don't save for retirement is that they're convinced they won't need the additional income once they stop working. But the typical worker simply cannot survive on Social Security alone. For one thing, those benefits are only designed to replace about 40% of the average American's pre-retirement earnings. Most folks need closer to 80% of their former income to pay the bills during their senior years, while many people wind up needing more.
Here's another way to look at it. Currently, the average Social Security recipient collects about $1,360 a month, or $16,320 a year, in benefits. Given that more than half that amount will be eaten up by healthcare costs alone, banking on Social Security in the absence of independent savings is a truly dangerous gamble.
5. We don't earn enough money to save
Though the average American household income is currently hovering around the $74,000 mark, plenty of us are earning considerably less. But that's not a valid reason to avoid saving for the future. While someone with a $100,000-a-year salary can generally sock away more money than someone earning $35,000 annually, we should all be striving to set aside 10% of our income (or more), regardless of what that number happens to be.
Even if you're a lower earner, there's a good chance you're currently spending money on things you technically don't need, like your standing weekly takeout order, cable plan, or maybe even a vehicle. Reviewing your budget and trimming the fat can help free up money that can then be used for retirement purposes.
Also remember that saving a small amount is better than saving nothing, so start with a less lofty goal and try to work your way up over time. Saving just $20 a week can go a long way toward building a nest egg, and as your income increases, you can begin ramping up your retirement plan contributions.
It's easy to make excuses about why we're not saving for retirement, but the sooner we all stop, the better our chances of salvaging our nest eggs in time. Though setting aside money does take some discipline and sacrifice, it's a far better option than the alternative: ignoring your savings and running out of money at the most vulnerable time of your life.