There are many reasons why most people don’t save enough money for their retirement but now, more than ever, Americans need to find a way to save more for retirement.
In some parts of the World like The Netherlands, where the Government provides Euro 1000 approx to every person when they turn 65 years old and company contributions to retirement cater for over 80% of their income prior to retirement. Sadly, there are only a few examples of well planned retirement saving by Government on behalf of their citizens.
In the USA we have our social security system which does provide some income, but this is a long way off our pre-retirement earnings. The US Government is giving away money to incentivize saving for retirement, but before we get there, let us consider a few reasons we are finding it so difficult to save for retirement.
Saving is a psychological shift in thinking. If money is deducted from your income before it comes into your account, you will not miss it and will begin to live with the lesser amount. It is a really funny thing, but after a little while you will not even think about it and you will be catering for your retirement.
Retirement Goal setting
Throughout our working life we are taught to set goals and measure our performance in terms of us achieving those goals. In our personal lives we do not seem to set financial retirement goals and attempt to achieve them in time or in record time.
Half the problem is that there does not seem to be a number we can aim at. If we had a number that we could work towards with an assured return on investment, we would then be able to calculate how much we need to save to achieve this.
Another problem in an age of instant gratification, is the concept of saving to cater for our expenses 40 years in the future.
In the investment markets today, there is no certainty when it comes to returns on investments and while we are in a low interest rate cycle, there seems little incentive to save. If we could see an evident increase in the amount we saved, we would be inspired to save more. Perhaps this is why very risky investments like currency trading and speculative stock trading platforms have mushroomed in the past decade.
Life expectancy
Retirement does not have the same meaning it did 50 years ago where life expectancy was around 70 years (three score years and 10). People routinely live well into their nineties and beyond, with many reaching over 100 years old. It is also said that the first person to reach 200 years old has already been born. These stats present a hugely different picture when trying to calculate a number to aim at for retirement.
Couple life expectancy with the uncertainty around our health and the financial markets delivering close tom zero in real returns in these historically low interest rate environments.
Life’s treadmill
It is essential to complete a masters degree/doctorate/honors degree in order to get good employment in this technologically driven age. This can mean studying for 5-7 years and sometimes 10-12 years just to be employable. During this time most students amass huge student loans which will take the next 10-15 years to pay off.
During these years, typically your 30’s, you will acquire a home, car and have a family, including various other trappings of success and spend the next 15-20 years paying these off, sometimes longer educating and repaying more debt.
This now has you in your late forties, heading towards fifty and with just 15-20 years before you are at retirement age. Does this give you enough time to save for your retirement and provide an income that will allow you to get off Life’s treadmill and enjoy your retirement?
No this will not.
Compound retirement savings
We all want to see exponential growth in our savings otherwise the incentive to save does not provide any inspiration to keep it up, so the best way to do it is to have a percentage of your salary deducted from it, before it reaches your account.
After some time, you will not even realize that you are living on less!
The sooner you start saving for retirement the better off you will be and the Government is quite aware of this. They offer tax incentives for people to save for their retirement and you should be investing in savings/investment instruments that give you this FREE MONEY.
The Government is saying to you “Save between $19500 and $26000 of your annual salary for retirement and you can deduct that amount from your salary pre-tax” This is FREE MONEY from the Government!
PLEASE TAKE THIS FREE MONEY!
This should be incentive enough to start saving as soon as you start paying tax!
In summary:
- Take advantage of tax incentives to save, they make an enormous difference to your savings .
- Set an automatic savings deduction from your salary or bank account.
- Pay off debt as soon as possible without sacrificing your retirement savings (This sets a savings state of mind)
