Why people aren’t saving enough for retirement

Household net worth is at an all-time high.

Home prices are at all-time highs.

The stock market is near all-time highs.

But not everyone feels good about their finances.

Here’s a look at average retirement balances by age, along with the share of each cohort who feel they’re on track for retirement:

The good news is that confidence tends to increase as you get older. The bad news is that the share of people who feel their retirement savings are on track does not reach 50% for any age group.

Part of this comes from the fact that some people will never feel like they have enough. Retirement is a scary prospect for many households. There are countless uncertainties involved in the process.

But obviously there are a lot of people who don’t have enough savings.

Why is that?

Here are some of the biggest reasons some people don’t have enough money saved for retirement:

You don’t make enough money. This is probably the biggest reason why most households do not have enough savings for retirement. Some people just don’t earn a high enough income to have any money left.

There are personal finance people who would have you believe that all bad habits are causing people to underfund their retirement.

Many people have no surplus left after paying for necessities.

The easiest way to save more is to earn more.

You are overwhelmed. No one teaches you how to prepare for retirement. You are on your own.

How much should you save? Where should you save? What should you invest in? What accounts should you open? When should you switch your investments?

It can be an overwhelming process if you’re not a personal finance person or don’t get help.

You procrastinate. Retirement is a long way off for most people. When you prioritize your finances, it’s much easier to focus on the things that seem more urgent at the moment.

I will start saving in the future when I am ready.

By the time you’re really ready to save for retirement, you’ve probably already missed out on the biggest benefits of compounding.

You don’t know how to save. Some people are bad with their finances.

You spend too much money. You can’t or don’t want to budget properly. Delaying gratification is hard.

It’s not everyone, but some people are just bad with money.

You have family obligations. As a parent, I sympathize with people who don’t save enough for retirement because they put their children first.

Children are expensive. You want to give them everything they want and more.

Will Flannigan of The Wall Street Journal wrote a refreshingly honest piece on the subject this week:

Here is his explanation:

Like many people of my generation, I fell behind in my retirement savings. The combination of entering the workforce during the financial crisis and the burden of student debt left me and many others behind from the start. And the higher cost of living in recent years has only made saving more difficult. Once you’re a little behind, it’s easy to keep falling further and further behind.

This piece about his friends and their retirement savings touched on the impact kids can have on that equation:

Since then, they bought a house, had two children and started small businesses. However, the amount they have set aside for retirement savings tops out at a few hundred dollars a month. “There was never a time when we felt 100% confident that we would save more money because life happens– we had children, if something happened to our house, or we changed jobs”, says Jamie, who is now 36 years old.

For Jamie and Anna, it’s a case of making tough choices. “There was a time when we were close to pulling money out of our retirement savings,” he says. “Are we sacrificing our retirement to pay for our kids’ college? We don’t know what’s best.”

Life happens.

They say you should put on your oxygen mask first and save for retirement before college savings. This makes sense from a personal finance perspective, but most parents prefer to put their children first.

Waiting isn’t ideal, but you can save your retirement savings later in life.

You just need to supercharge your savings when the kids are out of the house. Once they come out of your payroll, you can use the money you spent on college or whatever and play catch-up.

You don’t get the same combined benefits, but it’s still possible to save your retirement.

In Everything you need to know about saving for retirement I wrote about how doubling your savings rate over 10, 15, and 20 years would result in a better outcome than doubling your ROI:

All is not lost if you’ve fallen behind on your retirement savings because life got in the way.

You just have to make it a priority.

Your kids will thank you for it one day so they don’t have to take care of you in your old age.

Further reading:
You probably need less money than you think for retirement