Why No One Saves for Retirement

If you follow financial news, you see the statistics all the time. The average 401(k) balance is $10,000. Or less, depending on the report. Seventy percent of Boomers haven’t saved nearly enough for retirement. Only fifteen percent of people eligible to participate in an employers’ retirement plan do so. Even less participate to the full extent allowed by law. By any measure, all of the reports tell us that no one saves for retirement.

Why does no one save for retirement? We all know it’s coming; it’s not a secret that retirement is out there. With every passing birthday we get older. We see the articles in the news and the advertisements for retirement products. Whole books are written about what to do in retirement. Intellectually we know that doing the things we want to do in retirement — traveling, pursuing hobbies, or doing nothing at all — requires money. Not to mention the expenses we know are coming for health care. Yet very few people in this country save anything for retirement and many of those who are saving are saving far too little. Why?

I hit upon a possible answer a few weeks ago in a book about global warming, although I didn’t know it at the time. I wish now I could remember the title of the book so I could give credit, but sadly I cannot. (This is what happens when you read a lot. Books start blurring together and you can’t remember who said what. ) Anyway, the author was arguing that the reason why humans don’t react more quickly to global warming is because we’re not evolutionally trained to deal with the far future. For most of human history, our existence was defined by the immediate future. Where was the next meal coming from? Would the sick person live until the next day? Would the bear kill us before we could kill it? Just getting from one day to another was an accomplishment and it left us no time to contemplate the distant future. Why think about the future when there is a very real chance that you won’t be here tomorrow?

It’s only been in the last two hundred years or so that technology and medical care have evolved to the point where we now have the luxury to think about the future. Unfortunately, now that we can think about the future, we aren’t fully prepared to deal with it. We have no trouble envisioning the future and thinking about it in abstract terms. However, when it comes to taking action, we are still hampered by our ancient selves. We want to take action and we know we should, but the ancient part of our brain is still saying, “Why bother? We might not be here tomorrow and, even if we are, the future is so far away as to be less important than what’s going on today.” It’s this way when we try to deal with global warming and I think it’s this way when we try to tackle retirement savings.

You see this every day in the excuses we give for not saving. “I could be hit by a bus tomorrow and I wouldn’t have had a chance to live for today. I want to spend today.” Or, “I’ve got plenty of time. I’ll tend to it later.” Or, “I know I should, but that’s so morbid I’d rather think about the happiness of today.” We know what we need to do, but our actions place the present ahead of the future. It takes a real act of will to overcome our evolutionary programming and save for the future we know is coming.

So how do you overcome the innate tendency to avoid saving for the future? First, don’t use your evolutionary fault as an excuse. Don’t tell yourself that it’s okay not to save because you’d rather live for today. Don’t tell yourself that you might not be here tomorrow so you should spend. True, you might not be here tomorrow, but the odds are good that you will be and you have to be ready for tomorrow. When you give in to that kind of thinking, you’re setting yourself up for failure.

Second, practice your willpower. It takes willpower or a conscious act to overcome a lot of our evolutionary tendencies. We overeat because, some argue, that evolution taught us to eat as much as we could when it was available because there might not be food available tomorrow. You have to consciously decide to eat less. It’s the same with saving. You have to consciously decide to save and then take action. If you just go with your tendency, you’ll spend all of your money today because you might not be here tomorrow.

Third, automate all of your retirement savings. If it’s automatic you have less chance for your ancient self to talk you out of saving. That little voice isn’t there telling you that you could die tomorrow, or that you have plenty of time so why worry. Just put it all on automatic and silence that voice. You might miss the money for a little while, but eventually you will adjust to living without it and you won’t miss it.

I’m not saying that it’s not your fault if you aren’t saving. It’s tempting to say, “Oh, see, we’re not programed to save so it’s not my fault.” Just because it may not be a natural tendency to prepare for the future doesn’t absolve you of responsibility for doing so. You know what you need to do so you have to make the conscious decision to take action and prepare for the future. Don’t be one of the sad statistics we see in the news. Save for your future, teach your kids to save, and maybe in another thousand years we’ll have evolved to the point where preparing for the future is innate. Assuming global warming doesn’t get us first…

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11 Responses to Why No One Saves for Retirement

  1. Lynn says:

    Another reason that people do not start saving for retirement is the plethora of options. Studies show that the more choices given to potential investors (think mutual funds) the chances are lower that they will sign up. Many people just cannot make a decision when faced with too many options. The paradox of choice.

  2. The human brain is perfectly suited for future gazing and has evolved to do so. From the first instance of agriculture, when the first seed was planted systematically for the future nourishment of the group (about 10,000 B.C. in Syria), and if you and the unnamed author considered the events leading up to that moment, you woud have realized that we have thought about the future. Even planned for it.

    Your numbers concerning who and who isn’t using the company-sponsored plana are far off the mark as well with half of those who have access to 401(k) plans using them and 45 million households invested in an IRA of some sort. We are programmed to see the future yet we are unable to understand it in large part because we are so consumed with the present.

    If people realized how little it took to invest in their future (as little as 5% pre-tax contribution would not have any effect in the net take-home pay of the in-the-present thinkers) would they see it as a reasonable? Of course they would.

    The problem isn’t us; it’s them. We don’t trust the process and can’t reason the risk. We don’t understand the need for a plan so therefore disdain the idea. My guess is there were quite a few harsh winters in our ancestral past with huge portions of the group dying before someone said: “perhaps we should plan for this when the weather is nice.” Plans are for disasters and in retirement, poverty is just such an event.

  3. Bern says:

    What’s troubling to me though is how the people that are saving are losing money in the process.

    Many put their funds in qualified “savings” plans like the 401k. But these plans are losing money today. These funds have no guarantees, which people are finally realizing.

    Saving money isn’t the answer…only part of it. It has to fit well within your financial plan. Where people put their “savings” can be costing them their retirement.

  4. Bben says:

    I did just that – socked away money in a 401k. Then, the year before I retired both of my 401k plans lost about 60% of their value. So much for saving for a rainy day. Luckily my backup plan is working so far. Social security and a part time job. I did pay off all of my debt before retiring. One of my 2 401k plans had enough left to make a large down payment on a small home and my mortgage is under $400 a month. So I will not be living on dog food. I arranged my finances so my mortgage and all monthly bills will be covered by the social security. Unlike most, my part time consulting job does come with a decent salary and full time benefits. It also leaves me plenty of time for grandkids. And it does keep me busy some of the time. However, my dream of traveling more has been shelved.

  5. Chris says:

    I don’t think that people are unaware of their futures. If they saw their parents comfortably retire because they were smart enough to have saved throughout their lives then they took that lesson to heart. And probably the parents taught them the value of saving.

    On the other hand, If they saw their parents working a part time job in their 60’s to make ends meet, then they would again realize the importance of having savings for retirement.

    There are many more things in life that you have to save for besides retirement. For the material things you want and unexpected emergencies for example. People should naturally get in the habit of saving by having a percentage of their paycheck automatically moved into a retirement account.

    I know for one that I don’t want to working a part time job in my 60’s or 70’s. The question is, how much is enough to save for retirement.

  6. Jo says:

    Speaking strictly for myself, I find it difficult to set aside money for retirement because of needing it all due to the high cost of needs. Inflation is happening at a rate far faster than our incomes, which hasn’t increased in the least in the past 20 years.

    And with every subsequent administration and the same old farts in Congress, it’s become more and more difficult to save. If the big banks and Wall Street have their way, fooling around with risky derivatives (redundancy, I know), we can pretty much kiss our retirement funds au revoir!

    NOTE: I am not trying to turn this into a political response, but you know that it IS political.

  7. Gail says:

    We stash what we can away for retirement, but it is difficult as self-employment income can flucuate so much. We do though work towards the goal of getting the house paid off before ‘retirement’ and also a rental property paid off to add income to our later years. As self-employed people no one will be telling hubby that he has hit mandatory retirement age. He has plans to work till he is dead. And by the way he is always battling health concerns just as I am, but keeps on working as sitting back with his feet propped up is not an option.

  8. Chris Hooper says:

    That’s a scary fact about 401k savings. I don’t understand why the US government has not mandated contributions to retirement savings. There’s no way the government can afford to support millions of retirees that haven’t saved for the future.

  9. Dennis Beaman says:

    I don’t believe the plethora of options is a major reason for not saving as much as say, the Japanese, do. When you you consider the tax rates, the cost of housing over the last 20 years, the cost of college, and other costs associated with running a household and raising children, there just is no money left until the kids have left the nest and your house is paid for. And with home equity loans so cheap over the years, it was very easy to use that money to buy “big boy toys” instead of pay off the house. That led to the house not being paid for early enough to start saving.

  10. Glen says:

    The uncomfortable silence around the retirement issue is deafening. They say save, but if you are trying to pay off something like food, rent, fuel, entertainment, with money that you are not earning enough of in the first place, this is just not possible.

    The cost of living is going up, and the paychecks are getting smaller. This isn’t our mommy and daddy’s world anymore.

    The question is, what will our children’s children do about it? And the troubles may come far sooner than we imagined: People are fast approaching retirement age and the income generated are increasingly not ending up in people’s pockets.

  11. anne says:

    it sure isn’t mom and dads world anymore…. companies cut your wages… and, who will quit … not too many jobs… so you take the cut… maybe not happy… but you have a job.and,401’s are gone or loss intrest. not much to be done in saving.. the cost of just living is way too high for our pay checks…. then serious illness sets in.savings lost in hospital bills medical tesrs and doctor bills and meds.so what you may have had is lost to illness. but then you stress because you can hardly work but have to and worry how can you work until age 70. pretty scary world.and worry about if you have to take disability… then how can you make it. and all the waste of our hard earned money being wasted in our leaders hands… what if they had to get cut in pay just to be in leardership and pay for all the average american people have to not being able to do anymore than the average joe.maybe then years ago … we would not be in the mess we are and yet money in leadership is still wasted and loop hole to get more out of our earning to pay off more and more that was wasted… i don’t know how more simple to say this.we are the ones who are sinking more and more by waste.i guess we will just have to sink in trying to pay off all the monies wasted. everyone including the gov. should buckel down on a very tigh budget and prices should go down as to where we can live.. to pay off the budgets of waste… if we all are killed off from working sick and no rest …. who will be the slaves to work off the budget?it was our hard earned monies that was spent and now we have to work more years on less of our earned money.what can we do… work!

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