Retirement Crisis in America: Why Are So Many People Unprepared for Retirement?
There is a growing retirement crisis in America. Financial experts are alarmed, and even Congress has taken up legislation to “fix it.”
According to a Bankrate survey earlier this year, one in five American adults have nothing saved for retirement or emergencies.
20 percent of Americans have saved 5 percent or less of their annual income to meet certain financial goals.
And less than a third have saved at least 11 percent or more.
It’s a bleak outlook for millions of Americans.
Despite these discouraging statistics, unemployment is currently at a near 50-year low and wage gains higher than they’ve been in a decade.
And we’re currently experiencing the longest bull market in U.S. history. This begs the question:
With a culture that values more is better, poor spending habits and crippling debt have become the norm.
Couple that with the cost of living increasing and skyrocketing healthcare costs, and it’s the recipe for a perfect storm.
In this post, we’re breaking down what’s contributing to the retirement crisis and what you can do to get your finances in order and be better prepared for retirement.
Lack of Education
Sadly, our industry is systematically disconnecting investors from their money. People are told it’s difficult to really understand investing and money in general.
The lack of education financial institutions provide is astounding.
We aren’t teaching it in schools either.
So, it’s no wonder that, in late 2018, less than a quarter of voting-age Americans “were ‘completely confident’ about their ability to navigate through economic ups and downs.”¹
We at 401k Maneuver™ want you to know that it’s not as difficult to understand your investments as you’ve been led to believe.
And it doesn’t take a finance degree to learn how to better manage your money and financial future.
The first step is to educate yourself. Do what you can to learn about your investments.
If you have a 401(k) and are unsure exactly what you’re invested in, start asking questions.
Seek third-party advice.
Read books on the topic and check blogs on how to maximize your retirement savings. And keep reading blogs like this one.
We cannot stress this enough: It’s up to YOU to make sure you’re financially prepared for retirement.
The sooner you start, the better off you’ll be. And the more likely you are to have a retirement lifestyle you desire rather than scraping by.
Poor Spending Habits
A Bankrate survey conducted in February this year shows that 40% of respondents aren’t saving for retirement because they have too many other expenses.²
The same survey reported that 1 in 5 adults cannot cover their current monthly bills.
And auto-loan delinquencies that are 90 days or more past due skyrocketed to 4.69% earlier this year–just below the peak delinquency level during the Great Recession in Q4 of 2010.³
The situation many Americans find themselves in and the subsequent retirement crisis in America boils down to this: overspending and poor money management.
With the rise of social media, fighting the urge to “keep up with the Jones” is harder than before.
We now see what our friends and neighbors are doing in daily photos and posts, and we often want what they have.
That trip to Iceland. That new car. Trying out that new, expensive restaurant in town.
Not to mention all the ads that inundate us on everything from Facebook to YouTube and TV to billboards telling us we need a bigger house, faster car, better life.
It’s human nature to want to expand, have an adventure, try new things.
And it’s difficult to be strong against the urge to have the newest thing. It’s hard not to get caught up in the culture of more is better–especially when it seems everyone is doing it.
The culture of consumerism and always having the latest gadget is what’s causing crippling debt among consumers, and hindering their ability to save for retirement.
What your friends’ social media posts and those TV ads don’t show is the true cost of owning that new thing or taking that trip.
Some people may be able to afford it. Others might have saved for a year.
And probably a majority have put it on a credit card, racking up more and more debt.
It doesn’t matter how much money you make–whether you’re a $50,000 or $200,000 income household.
Overspending and lack of planning for emergencies and for your financial future plague all income brackets.
And it’s not always bigger purchases that are causing money to fly out the door.
Take a moment to answer these questions:
- If you stopped going out to lunch four times a week with co-workers and instead packed your lunch, how much could you squirrel away after 30, 60, or 90 days?
- What if you didn’t buy that new phone/computer/tech gadget this year, and instead, paid off debt with the money saved?
- How much would that be? Add it up. money more closely? Take a look at the past 6 months of fees, and add them up. That’s how much you could save in the next 6 months if you budgeted better.
If you do this exercise, you’ll see that it’s the little things that make a big difference in the long run.
No matter your household income, quality of job, or current financial situation, it’s time to take control of your financial future.
- If you don’t already have a budget, create one.
- If you have a budget, go through it line by line and see what you can cut.
- Pay yourself first. Make sure you set aside 10% of your paycheck for retirement savings.
- Set aside another 10% for an emergency fund.
- Pay your bills.
- The remaining money left over is spending money.
Lack of Emergency Savings
According to the US Federal Reserve Board’s Report on the Economic Well-Being of U.S. Households, 4 in 10 adults would not be able to cover $400 worth of unexpected expenses, such as a car repair or broken appliances.⁴
This is down from 2013, when half of adults could not cover a small, unexpected expense.
Of those not able to cover a hypothetical $400 unexpected expense, 43% would carry a balance on a credit card to pay for it.
26% would borrow the money from a family member or friend. And 19% would sell something to come up with the money.
If a medical issue arose, 1 in 4 adults would skip medical treatment because they could not afford it!
Without basic savings to cover emergencies, it makes it harder to recover if you have to borrow the money or carry a balance on a credit card.
Because now, you have to pay that back, and you’re unable to work on paying down the original debt, paying monthly bills, or saving for retirement.
It’s a vicious cycle too many people find themselves in, and it’s contributing to the retirement crisis in America.
The good news is that, with a little effort and determination, you can build an emergency account so the next time the AC breaks or you have to rush your dog to the vet, you can easily pay in cash.
- Review your monthly budget. See where you can cut back and, instead, save that money. If you don’t have a budget, make one.
- Create a plan to get $1,000 in an emergency fund as soon as possible. Once you reach $1,000, set a new goal to get another $1,000. Keep funding your emergency account.
- If you have to take out money should something arise, make sure to re-fund the account.
Carrying Too Much Debt
Debt is also a contributing factor to the retirement crisis in America.
Student loans and maxed-out credit cards…
Auto loans, outstanding medical bills, and mortgages…
Debt not only prevents you from maximizing your retirement savings, but it may also affect your retirement lifestyle should you carry that debt into retirement.
A recent survey by T. Rowe Price showed that 69% of parents want to put money toward college before saving for retirement, and more than three-quarters say they are willing to delay retirement to pay for kids’ schooling.⁵
Add to that the $4 trillion in consumer debt Americans now owe ($1 trillion of which is revolving debt such as credit card debt), and it’s not surprising the retirement savings outlook is bleak.
It’s not just younger people carrying debt: people over the age of 60 owe one-third of the $1 trillion, according to the Federal Reserve Bank of New York.⁶
The more you owe, the less you have to pay yourself and save for retirement or fund your emergency savings account.
And if you carry debt into retirement, chances are you’re going to have to work longer and will have less income to spend.
- Add up all the debt you owe and the interest, and create a plan to get that debt paid down. Make sure to review this monthly to track your progress.
- If you aren’t sure of the best strategy to pay it all off, do an internet search or use debt pay-off calculators to figure out which bills to pay down first.
- Review your monthly budget and see what you can cut. If you have to cut a monthly subscription, do it. If you have to take a side-hustle, do it. Remember, this is your money and your future. If you don’t take your financial future into your own hands now, no one is going to do it for you.
Not Seeking Expert Advice
With crippling debt, cost of living increasing, healthcare costs soaring, and lack of savings, how are people going to survive retirement?
If you apply the advice in this article and get third-party help, you’ll be in a much better position.
In fact, a recent Morningstar report showed that participants who received expert guidance had as much as 40% more income during retirement versus those who received no help at all.⁷
Just think about the difference a potential 40% increase in your retirement income might do for your retirement! How much could that be, and how would you use it come retirement?
It doesn’t matter how much or how little money you have saved for retirement, or how much debt you are carrying…
A third-party expert can help you create a plan to get out of debt, fund your emergency account, and maximize your retirement savings.
Make the best decision for your financial future. Download our no-cost guide on how to understand The Different Types of Licenses Financial Advisor Have and What They Mean to You.
- David Blanchet, Morningstar Analyst 2014, “The Impact of Expert Guidance on Participant Savings and Investment Behaviors”