In today's episode of Let's Have Fun Talking About Retirement, we'll discuss why people have such a hard time getting into a healthy habit that's actually quite painless once you get used to it. No, not flossing. It's even easier than that!
Why saving is easy
Setting yourself up for a comfortable retirement is easier than flossing because, once you set things in motion, there's very little else for you to do. Here's a concrete example: A 21-year-old who manages to tuck away $3,000 a year can be a millionaire by age 63, assuming 8% average annual returns. That's $125 per paycheck that this person will hardly miss. And it can be even less per check if an employer provides matching funds in a 401(k).
It's heartening that for so many people, the financial life they want is easily within reach. But it's heartbreaking that so few people are even bothering to reach for it.
My colleague John Reeves wrote an article a couple of years ago about the frightening state of retirement savings in America. Among the dreary facts: Almost 75% of retirees say they haven't saved enough, and households approaching retirement these days have only about $120,000 in 401(k) or IRA balances! The younger generation doesn't appear to be learning much from this, as 21% of employees eligible for their company's 401(k) plans aren't taking advantage of them.
Two reasons why it's challenging
Perhaps if we look at the reasons why we find it hard to save for retirement, we'll be better able to reverse the trend. Here's an excerpt from my interview with Jean Setzfand, the vice president of financial security at AARP. She talks about two reasons why we find it difficult to get going:
- The distractions that are in front of us right now.
- Our inability to grasp how our retirement years will actually play out.
What you can do right now
Yes, you have money issues in the here and now. We all do. But don't let immediate yet unimportant problems keep you from focusing on distant yet critical goals like retirement saving. Make paying yourself a priority. Notify your employer today that you want to start, or increase, your 401(k) contributions. Get serious about your own IRA account if you don't have access to a 401(k).
As Jean says in the video, actively think about what your retirement years will look like. What kind of income will you need to support that? Take some steps to get started, and it will help make the uncertain a bit more certain.
Oh -- and don't forget to floss.
It is a hard job to save for retirement, because you have too many other issues right in front of you today. Like some people are trying to balance their checkbooks today to make ends meet, and therefore they're pushing off future needs to the back of their mind and not starting. That's definitely one element of it -- that there are too many current distractions. But also, I think it's just difficult. It's hard to get your hands around the future and the uncertainties of the future. What am I going to do? How much am I going to need? A lot of what we've talked to our members about, and the 50-plus population, is to actually think about what that next phase of life looks like. We actually see that for people who are good planners, they have a really firm grasp of the next phase in their life. Tangibly knowing what that life looks like will actually give you a sense of how much money you'll need to support that life. So, the more you can make the uncertain certain, it helps to think about future planning. The uncertainty and unpredictability of it is a huge obstacle for people.
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