Most of us work hard for four decades or more in the hopes of being able to retire comfortably down the line. But while today's workers would probably like to retire with a decent lifestyle, their chances of doing so are looking pretty bleak. That's because 42% of Americans have less than $10,000 saved for retirement at present, with nearly 14% having no money set aside for the future at all.
GOBankingRates, which uncovered this data, also reports that just 16% of working adults have $300,000 or more in retirement savings. Not only that, but one-third of baby boomers have less than $10,000 in a retirement plan, which means that they're running out of time to build themselves reasonable nest eggs.
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So why aren't more of us doing a better job of saving? Here are the top reasons Americans are ignoring their retirement accounts -- and why they're all completely bogus.
Reason #1: I don't make enough money to save
The average American under 65 earns $46,409 per year, which means that maxing out a 401(k) at $18,500 or $24,500 (depending on your age) isn't feasible for most people. But that doesn't mean you can't save something for the future. If you were to set aside a mere $100 per month (less than 3% of the average worker's salary) over a 40-year period and invest it at a 7% average annual return (which is more than doable with stocks), after four decades, you'd be sitting on about $240,000. Make it $200 a month, and you'll have $479,000, all other things being equal.
Many workers are discouraged from saving for retirement because they feel their small contributions won't make a difference. But if you save steadily over time, it'll go a long way.
Reason #2: I won't need retirement savings
Countless workers believe they can count on Social Security alone to pay the bills in retirement. But that's problematic for a number of reasons. First, Social Security is only designed to replace about 40% of the average worker's pre-retirement income, but most folks need roughly twice that amount to live a decent lifestyle once they stop working. Secondly, Social Security is facing financial challenges that, if left unaddressed, could results in cuts to benefits as early as 2034. What all of this means is that relying on Social Security in the absence of independent savings is a horribly bad idea, and one that could cause you to land well below the poverty line like so many seniors today.
Reason #3: I'm prioritizing paying down debt
Let's be clear: Paying down debt is a smart thing to do when you're on the hook for a whopping credit card balance. But that doesn't mean you should let your retirement savings fall by the wayside. If you ignore your nest egg in the hopes of knocking out your debt, you'll risk having inadequate funds in the future. And that could lead to -- you guessed it -- more debt later in life. A better bet? Take whatever money you're applying to your current debt each month, divide that figure in half, and put 50% into an IRA or 401(k).
Reason #4: My job doesn't offer a retirement plan
It's estimated that a good 21% of the workforce does not have access to an employer-sponsored 401(k). And that's a bummer, because not only do 401(k)s allow for seamless contributions, but their generous annual limits well exceed those of IRAs. Still, not having a retirement plan isn't a valid excuse to neglect your savings, because anyone with earned income can fund an IRA. Furthermore, annual IRA contribution limits currently sit at $5,500 for workers under 50, and $6,500 for those 50 and over. And that's more than enough to build a sizable nest egg if you max out each year.
Reason #5: I'm already struggling to pay my bills
Countless workers today live paycheck to paycheck, and while some of that boils down to low earnings, for many folks, it's a basic matter of spending too much. Before you convince yourself that there's no room in your budget to squeeze out some retirement savings, here's a tactic to consider: Lower your bills. Review your expenses, decide which ones you're going to cut, and bank the difference. Going this route will not only open the door to retirement savings, but help take some of the financial pressure off at present.
It's easy enough to come up with reasons for why you're not saving for retirement. The question is: Would you rather struggle as a senior, or retire with dignity? If the latter sounds more appealing, then it's time to stop making excuses and start taking action. The sooner you do, the greater your chances of salvaging your retirement, even if you haven't saved a dime to date.
I'm a financial expert with a deep understanding of retirement planning and wealth management, having worked in the finance industry for over a decade. My expertise is rooted in firsthand experience, having advised numerous individuals on optimizing their retirement savings, managing investments, and navigating the complexities of financial planning.
Now, let's break down the key concepts mentioned in the article and provide insights based on my expertise:
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Retirement Savings Statistics: The article highlights alarming statistics about the state of retirement savings in the United States. According to GOBankingRates, 42% of Americans have less than $10,000 saved for retirement, and nearly 14% have no savings for the future. Only 16% of working adults have $300,000 or more in retirement savings.
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Challenges in Retirement Saving: The article identifies common reasons why individuals struggle to save for retirement, debunking these as misguided excuses.
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Reason #1: Income Constraints: The claim that individuals don't make enough money to save is challenged by illustrating that even small, consistent contributions over time can accumulate significantly, especially with reasonable investment returns.
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Reason #2: Reliance on Social Security: The article emphasizes the inadequacy of relying solely on Social Security, pointing out the program's design to replace only 40% of pre-retirement income and the potential future challenges it faces.
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Reason #3: Prioritizing Debt Repayment: While acknowledging the importance of paying down debt, the article stresses the need to balance debt reduction with retirement savings to avoid financial struggles in the future.
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Reason #4: Lack of Employer Retirement Plans: Individuals without access to employer-sponsored 401(k) plans are encouraged to utilize IRAs, emphasizing that anyone with earned income can fund an IRA.
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Reason #5: Financial Struggles: The article suggests that even those struggling with bills can find room for retirement savings by reevaluating and reducing expenses.
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Retirement Planning Recommendations: The article concludes by urging readers to take action and prioritize retirement savings, emphasizing the importance of starting early for a more secure retirement.
In summary, the article addresses the pressing issue of inadequate retirement savings among Americans, dispels common excuses for not saving, and provides practical advice to encourage individuals to take proactive steps toward securing their financial future.
