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Last week’s column on retirement savings rates elicited a lot of comments and thoughts from readers so I want to take some time today to both recognize some of the feedback I got and also provide some additional context to some of the ideas I discussed last week.
A number of you wrote in to tell me that the fact that about half of Americans aren’t saving anything for retirement isn’t all that surprising — and that it’s largely a result of the current state of our economy.
For example, Keith had the following to say:
“I come from what I think would be described as an average family. I was the third person across all my relatives to go to college and get a degree. My sister followed me, bringing the total to four college degrees across a family of about sixty people. My cousins are all non-degreed blue collar workers.
“It’s easy for me to look at one of them and criticize their buying decisions. I can afford to buy my kids a fast food burger or pay for them to participate in a club sport. The rest of my clan is not so fortunate. They, on average, gross in the $40k to $50k range. A few still live in the homes they bought, although three have lost their homes to foreclosure. The net off of $50k doesn’t leave much left for food, transportation to work (most of them don’t own cars — they bus), and rent/mortgage. I could give a lot more details, but I’m sure you get the point. At these income levels, debt is almost inevitable, unless you had the foresight from your teen years to live as a minimalist; and no one is educated that way.”
Other readers wrote in with similar stories of friends, family members, or co-workers who are struggling these days.
Look, there’s no doubt economic weakness IS a factor for some people. And I acknowledged that in last week’s column.
However, I also want to show you some numbers that suggest it is not THE factor in all cases … and perhaps not even in the majority of cases.
For example, according to the Employee Benefit Research Institute (EBRI), the percentage of Americans who said they were saving for retirement stood at 66 percent in 2007. I think most of us can agree that year represented a high point in terms of economic conditions, stock prices, and other “feel good” metrics.
So what happened when the economy, the stock market, and other measures of American financial well-being started going down?
Amazingly, Americans started saving MORE for retirement!
Again, according to the EBRI:
72 percent of Americans said they were saving for retirement in 2008, a sharp six-percentage-point increase from 2007 …
Now, there’s no doubt that unemployment in this country remains much higher than normal, as does “underemployment.” So certainly this drawn-out downturn could simply be resulting in a lot of Americans finally having to dip into their current savings or running out of additional income to sock away for the future.
But if anything, these numbers seem to suggest that people save less when times are good and more when they’re truly bad. In other words, the highest incidence of delayed gratification comes when events scare people into waiting a bit longer.
That brings us back to the people in Keith’s story … as well as many of the other folks you wrote in to tell me about.
I’m still struggling to believe that a family earning $40,000 or $50,000 a year can’t save ANYTHING toward retirement if they really want to.
Especially not when there are so many incentives for them to do so!
Consider the simple fact that anything contributed to a 401(k) plan or IRA account will immediately lower their tax bill — making at least some of those contributions essentially free.
And then there’s an additional tax credit that is currently available to families making $56,000 or less. It’s called “The Savers Credit” (formerly known as the Retirement Savings Contributions Credit) and allows eligible taxpayers to get an additional tax credit of as much as HALF of the money they put away for retirement!
The end result of just these two credits alone means that lower-income American families have every reason — and a lot of actual governmental monetary help — to put at least a little money away every year in their own private investment accounts.
Plus, there are also private incentives like 401(k) matches.
So again, I ask — is it really that half of Americans CAN’T save anything for retirement?
I still think the answer is “no.”
Instead, I think it often boils down to simple choices — many of which come back to the inability to delay gratification that I discussed last week.
For example, how much are some non-savers spending on cigarettes … soft drinks … or lavish Christmas gifts? Would they be willing to forgo cable television to put $50 or $80 a month into their retirement accounts? (And yes, for the record, we forego all of these things in my own house.)
Or how many people simply think there’s no point in saving for retirement for some other reason?
Specifically, I’ve heard the argument that the ravages of inflation will make the exercise of saving for retirement futile anyway.
To that, I say it’s simply a matter of picking the right investments.
And that brings me to a larger point — the point that I was really trying to make last week. Namely, that …
The Fact That Many Americans Aren’t Planning for Retirement
Often Boils Down to a Lack of Education on the Topic!
Some folks simply can’t save for retirement because they literally don’t have the means.
But I’m arguing that is the minority of the population … and in most other cases, Americans are choosing not to save, whether consciously or not.
Here’s where education comes in — because the sad truth is that a lot of Americans have never even been taught basic principles of budgeting let alone how our convoluted tax code may actually provide them with “free” money to save for their retirements.
This is why I spend so much time talking about these things in my columns here. It’s why I point out all the problems with our current retirement fall-backs like Social Security. It’s why I discuss certain tax issues, various retirement accounts, and specific investments that can help grow your wealth. It’s also why I challenge us all to think critically about these issues … and to do better, save more, and pass along our knowledge to other people in our lives.
Lastly, I want to emphasize the fact that I’m not looking to single out lower-income Americans when I talk about these issues.
There are countless stories and studies about more affluent Americans showing a similar inability to plan for retirement or live within their (higher-than-normal) means.
Heck, an old survey from the NY Fed showed that even back in 1993 20 percent of families making more than $75,000 were still not participating in the company-sponsored retirement plans that were available to them. And anecdotally, I can tell you that there are plenty of higher-income folks that could be saving lots of money right now but aren’t.
So again, if you know anyone who’s not saving for their retirement right now, please at least have a frank talk with them about the issue … because even if they are truly unable to save anything right now, a working knowledge of the subject will only better prepare them for the future.
Best wishes,
Nilus
P.S. I can only discuss so much in these weekly columns — and that’s why I encourage you to start reading my regular Income Superstars newsletter issues. Not only do they provide a lot more information on various retirement issues and strategies, but I also give you lots of specific income-boosting investments that you can buy right now to better your golden years. Best of all, a full year only costs $39 and I offer an unconditional money-back guarantee. Just click here for all the details now.
{ 12 comments }
Nilus,
Nearly half of all Americans don’t pay any income taxes. Most of those people are not only living on very limited incomes, the credits you mentioned provide little or no incentive for them to save.
I agree a lot of Americans who could be saving for retirement aren’t, but a significant portion of those who aren’t are having so many challenges surviving one day to the next they don’t have the time or resources to plan for the future. Some of those who have problems coping one day at a time would find it easier if they made better decisions. But their problems usually included destructive behaviors that are far more significant than just an inability to delay gratification.
Ray
“”” the credits you mentioned provide little or no incentive for them to save. “””
I think that has a lot to do with it. It’s like I posted in Nilus’s previous article: find someone who works as a cashier at a grocery store and get *first hand* knowledge of how food stamps are being used. Food stamp recipients eat better (in terms of decadence, not nutrition) than most middle-class working families. And, it’s not just a *few* people. There’s a large percentage of people on food stamps (EBT) buying bottled water, frozen pizzas, pies, cakes, etc.
When such helping-hand programs become so widely taken for granted, it definitely creates an atmosphere that there’s nothing to worry about. That you can live without care for tomorrow, because someone will always refill your EBT card with money for not just the basic necessities (eggs, bread, milk, fresh fruits and veggies), but ribs, bottled water, birthday cakes, Marie Calendar frozen dinners.
(And then, when they’re done paying with for their order with EBT, they have their liquor on a separate order. If they had to pay for those frozen foods and candy with their own money, they wouldn’t have money for liquor! And then, to add insult to injury: a coupon prints out informing them that they’re eligible for a free cell phone due to their low income/assets.).
I’m all for social programs. But, they should be viewed as educational…. because THEY ARE EDUCATIONAL. Right now we’re giving *many* Americans an education that it’s not so bad to have less than $600 in the bank. You get Section 8 housing, food stamps that are virtually UNRESTRICTED, a free cell phone, healthcare at the ER (if not Medicaid). And then, if you pump out kids you get WIC checks too. (So now the kids are getting an education in buying Marie Calendar’s frozen meals without having to pay for it. It’s just the benefits of having less than $600 in the bank.).
I hate to sound like a Right Winger. I firmly support helping our fellow citizens out of poverty. But, frozen dinners and $40 birthday cakes? This is perverse. It’s a symptom of our polarized political system where we can’t have a rational discussion about how to improve the system without it turning into a polarized (either/or) debate painted with terms like “socialism” and a question of whether welfare should or shouldn’t exist (not the form in which it exists).
Ray, the topic of who pays taxes (and doesn’t) is something I follow closely and I could write about 15 columns on it. =^) But for now let me just say that in the majority of cases the labryinth of credits are the REASON about half of Americans don’t pay taxes. So that doesn’t negate my argument — it just means the percentage of non-payers might go up or more refunds might go out. I would also note that many of the people in the non-paying category are not living on what I would consider *very* limited incomes — including a number of six-figure earners.
I would reverse the other argument, too — the inability to delay gratification is often the cause of the other destructive behaviors. Whether that’s simply human nature or not is another matter entirely.
I bet you will not print this, I’ve saved my whole life retired with 700k ,then Wall St and the Government took 300k that leavesme with 400k for the rest of my life, THEY STOLE MY MONEY, so why save, so others can steal it? They tell my greandchildren Go to school and come out to NO jobs, look at reality Mr.
I would argue there are ways to legally diminish how much the government takes … and completely avoid Wall Street taking anything. But I agree that it is hard to do so without education.
Nilus
P.S. What were we betting? =^)
This is very interesting. I saw the light in 1970, when I got back from Vietnam. But it took me another fifteen years to figure out what I was doing and another five years to get on the right road. DEBT is the killer of any savings. I retired when I was 48, with only savings and investments to live on. I have worked part time since, but no “rat racing”. From 1995 to date, seventeen years, I have taken seven full years off, and worked part time, a mile and a half from home, as a greeter at a trash collection and recycling center. I spent all of that time off with my late wife who died at age 62. That was time I enjoyed with her company, rather than the company of fellow employees who wanted to cut my throat. Get out of debt. Own a place to live that is paid for and affordable. Have five to ten years of expenses in liquid investments. Have a savings pool of one to two years expenses in physical gold and silver.
Congrats, Bill. It sounds like you have done well by saving, using common sense, and favoring time over money.
Nilus
We do not educate our youth to have a sound lesson in economics and money management. I am not sure that with such an edication it would serve it’s intended purpose since too much enticements create a challege to think and act in a thriftful mode. Those old Ben Franklin attitudes are long gone. Now having said all that let me state that the instruments of government are counter to thrift. Government spending with the help of a go-along Federal Resrve and Treasury create the inflation that wiped out savings and long range planning. We have created a lose-lose situation where spending more seems to be the short term solution that will drive our society further into debt and the dark winter of our discontent.
I earned a 50% teamster pension in my 20’s and 30’s with that and SSI I always thought I would not need the 401K thing. It was a total lack of education on the subject. I now contribute and get an employer match. You will also try to teach your readers to not use their house as an ATM. That’s where I really screwed up the most. I won’t retire rich however will be better off than most. Very good article Nilus. I am guiding my kids to take this advise very seriously.
Comparing pre- and post-recession poll questions seems meaningless without knowing HOW MUCH they’re saving. You had people earning $80k per year who were saving $8k for retirement. Now they work at a convenience store and saving $10 per week.
Or, you have convenience-store clerks who were saving nothing prior to the recession, and now they’re saving $5 per week (until their car breaks down, and they dip into their savings so they can continue to earn sustenance income of $150 per week.).
I think all your comparison proves is that more people are *aware* of the need to save, and do more with less. That it’s less popular to live beyond one’s means. Most likely people are giving an answer that betrays how they want to be seen. For example, they might have cut down on the use of Pay Day loans to make ends meet. They may have reduced their persistent indebtedness. They may view this as their attempt to save for retirement (denying themselves instant gratification today). But, living (more) within their means doesn’t equate to actual saving for retirement even though it’s definitely a good start.
I agree the data isn’t perfect. But it does indicate general trends. Also please note that these were all or nothing questions — we’re talking about saving anything vs. saving nothing. That’s been my point all along … I don’t believe that half of Americans can’t save ANYTHING for retirement. If someone is putting $100 a year in an IRA account it at least demonstrates a willingness to try.
Nilus
At 75 YOA, I have done well, and far better than my son has done, or that my grandchildren will ever do. It is true that part of that is lack of education, understanding and the patience to defer gratification, they having seen how well their parents and grandparents were (and are) able to live. Still, a larger part of the difference is also the much better, more stable and less volitile, less competetive and less fraudulent, times that I enjoyed when I was in the workplace. Now, it is up to me to attempt to provide them with supplemental support from my, very modest, success. So, instead of things getting even better for our children than they were for us, they got worse; and now even we somewhat more successful older folks too must join the “losers”.
“My” times (unlike our later “globalized”, post-WWII, post-Reagan, times) featured employers competing more for employees than vice versa; with considerable influence of unions on wages and benefits, even influence on non-union employers, due to wage competetion. The importation of labor and exportation of jobs (along with the corporate tax avoidance permitted by offshore operations and contracting, and more effective lobbying of government) also facilitated this. We have to think that, post WWII, quasi-isolationist, nationalist and “socialist” countries have done better for the average citizen — think Switzerland, the Scandanavian countries, etc.
Still, and even given some motivation by to save and “invest”, i disagree with your above statement suggesting that many are deterred by the perceived effect of “inflation” on anything they might save. Most of us, and any who think about it, understand that inflation will occur whatever we do or do not do about saving or anything else, and that savings and investment decisions can just as well ignore inflation, because it is an uncontrollable given. This is particularly true, as we know the old investment pinciple that reaching for inflation-beating profits or yeilds only increases the risk of loss.
I believe that a much more depressing influence on saving and investing, even beyond unwillingness to defer gratification, is the DOUBT OF ANY POSSIBILITY FOR FUTURE GRATIFICATION that would exceed or even equal present gratification, especially as it is the young who are most able to be gratified. A more immediate factor, is the growing perception that the entire financial/investment ‘game” is increasingly a game for experts and gamblers, with extreme volitility, lack of transparency, unfair market mechanisms and outright fraud in many cases; always costing the multitude of “little guys” to the benefit of the few. The news is full of the stories.
As to “retirement savings”, the usual (and best) advice is always to build a substantial “emergency fund” savings before long term savings for retirement; and it used to be that funding a down payment on a house also came between those two. Of course, our young people have seen what happened to housing values, with the cost of debt and maintanence continuing, and the value of the asset having dropped off a cliff. Even those young who believe that Social Security and MediCare will not be there for them, can only despair of ever being able to replace them with savings.
I think that most of us, young and old, successful and otherwise, have a feeling that “something” dramatic “is coming” (because it has to), and that it may be even worse than we might anticipate. We can only hope that the forces of moderation, essential preservation and some remaining human concern of our government for its citizens, will prevail.