Americans Don’t Save for Retirement Because They Don’t Earn Enough Money

[eytonxav]

Undoubtedly true for many, but not all. I had a friend who was a VP at a fortune 500 company who did save some of his earnings for retirement, but he liked living high off the hog even more, so did not put away nearly enough. He has kept working well into his 60s to maintain his life style despite not enjoying the changing work climate.

 

[skipro33]

It really urks me when people tell me they can't save for retirement because they don't make enough. Yet there they are; multiple cars, an RV, motorcycle perhaps, a cell phone w/data plan, big TV, every light in the house on, using dryer instead of the clothes line, a million different things they COULD be doing to save money on expenses and they just think they are entitled to those things PLUS have enough left over to save for a retirement.

I bet if they wanted a vacation they'd save for that. I think people expect things will just 'work out' for them without any discipline towards saving at all. I have two sons that have learned from my example what it takes to save and how to make savings work for them to grow. Yes, college can be expensive, but what good is a college education if they aren't even taught the simple economics of how to work their finances to include retirement?

The worst of it is that those of us who have taken to heart the discipline to work at saving are made to feel guilty about it. Not one person I know has told me that I deserved my current financial situation. Instead they tell me how 'lucky' I am, not that I worked at saving.

 

[Dtail]

It really urks me when people tell me they can't save for retirement because they don't make enough. Yet there they are; multiple cars, an RV, motorcycle perhaps, a cell phone w/data plan, big TV, every light in the house on, using dryer instead of the clothes line, a million different things they COULD be doing to save money on expenses and they just think they are entitled to those things PLUS have enough left over to save for a retirement.

I bet if they wanted a vacation they'd save for that. I think people expect things will just 'work out' for them without any discipline towards saving at all. I have two sons that have learned from my example what it takes to save and how to make savings work for them to grow. Yes, college can be expensive, but what good is a college education if they aren't even taught the simple economics of how to work their finances to include retirement?

The worst of it is that those of us who have taken to heart the discipline to work at saving are made to feel guilty about it. Not one person I know has told me that I deserved my current financial situation. Instead they tell me how 'lucky' I am, not that I worked at saving.

+1 plus mostly jealousy, otherwise they would have to admit they made the wrong lifestyle choice.

 

[carnivalday]

I feel a bit of both camps.
In my development which would be considered an in between middle/upper middle class living, the average house costs 350k. The average teachers salary in FLA just as one example is 35k, so if the household income is 70k, they can't afford a 350k house.

But why should they buy a $350k house? They cant afford it, and their income is not upper middle class. Whats wrong with buying a $250k home, surely in the area that is a nice house in a decent neighborhood.

I really think a lot of the reason people arent saving for retirement is because people want what they want when they want it. How many people cook meals at home 7 days a week? How many people drive used cars with minimum payments? How many people keep their phones and computers until they just croak? I just retired last year, with no 401k, with average, at best income, keeping my vehicles for over 10 years, not eating out 5 times a week. I saved something, every single month, even if it was only $50. It can be done, but it cant be done while you are spending every penny you have. I see way too many people who whine that they dont have retirement savings, but have a $500 car payment. I dont know the answer, I dont know if it needs to be taught in school, but in general I think people's money management skills are deplorable.

 

[HI Bill]

They barely have enough to cover their daily expenses; they don’t have enough left over to be able to save. "

Yep, gotta buy those new iPhones every year, the BMW, and a bigger house than you can afford!

 

[Dtail]

But why should they buy a $350k house? They cant afford it, and their income is not upper middle class. Whats wrong with buying a $250k home, surely in the area that is a nice house in a decent neighborhood.

Agree on the not being upper middle class, although I stated middle/upper middle but nitpicking.
However, even a 250k home means 50k down with a 200k mortgage which is a multiple of 2.85x of income which is not a walk in the park to afford.

 

[HI Bill]

...there are equal or more number of people who don’t save because it’s not the way they think. Most Americans are raised in relative comfort where they just didn’t have to scrimp and save to make ends meet and to put food on the table. Moreover, most of us are conditioned to spend money and spending money equates to life satisfaction in our minds. It’s not surprising that immigrants raised in deep poverty and deprivation find it easier to save due to cultural values and lack of having a consumer mindset.

Yep. My mom and dad had a continuous power struggle over spending money througought their marriage. She fought to spend as much as she could, often wasting money, rather than saving it. It was both a power issue, and her constant fear wast that my dad would decrease her 'budget' if she didn't spend every last dime. Ultimately, it was always about he 'expenses'. She never did see that expenses are partly mandatory, but partly discretionary. She never bought gas anywhere but at Chevron (most expsensive in town), always paid for too much insurance. etc. Some of these things made her feel safer, but she never saw the cost of the perceived safety.

 

[HI Bill]

Agree on the not being upper middle class, although I stated middle/upper middle but nitpicking.
However, even a 250k home means 50k down with a 200k mortgage which is a multiple of 2.85x of income which is not a walk in the park to afford.

Exactly. And in FL, property taxes are so high, that you're often times better off renting than owning!

 

[pb4uski]

Agree on the not being upper middle class, although I stated middle/upper middle but nitpicking.
However, even a 250k home means 50k down with a 200k mortgage which is a multiple of 2.85x of income which is not a walk in the park to afford.

I dunno... we just sold my Mom's 2 brdm/2 bath 1,400 sf single family home in central FL for $147k and excluding mortgage her annual costs were about $8k a year. In our neighborhood in Sarasota you can buy a 2 bdrm/2 bath 1,278 sf condo for about $150k and annual costs excluding motgage are also about $8k a year.

Add another $9k for mortgage payments and you're talking ~$17k a year for housing... divide by 30% and $57k of income would support that housing cost.

 

[nap470]

I'm not sure exactly how I feel on this subject. I guess I see both sides. I started out after college (1983) in a small apartment with a mattress on the floor, a thrift shop couch and chair, a 13 inch b/w TV and a large wooden cable spool with a sheet over it as a table. And I had a degree and a job. So when I hear younger people complain or read articles like this one, it does bother me. I say "toughen up" and just make it happen. Usually they have a nice vehicle, iPhone and other "luxuries." But the reality is that the cost of living in many areas makes it impossible to get ahead. Sometimes you just have to move to a lower cost area or somehow change your lifestyle temporarily to improve it long term. I made that choice and moved away from my family and set a goal that I would save / invest every penny above what my rent, food and utilities were every month. Wasn't exciting but it worked. Every future pay raise for years went to investing. Eventually things got better. Compounding is a great thing. You just have to find your way there first. No magic pill or government program.

 

[HtownRose]

somehow I survive on a $100/yr for phone calls/texting, and use a low cost internet (he could do it for free) for the times he needed internet.

Would love to know your mobile phone & internet provider(s). I've had TracFone for years & used to be able to get an additional 365 days of service as an add-on after my order of minutes for around $50 but last time I re-upped the option was gone so I'm researching deals for low mobile phone usage (2 lines). ATT Uverse is my internet provider & they seem to go up every couple of months.

 

[SnowBound]

My savings just started make more money than I can from working. Makes me mad that lazy money out earns me. Feels like only one in twenty people understand what I'm mad about, MAYBE that is the root of the issue.

 

[RobbieB]

Hehe, social security, qualified dividends, capital gains and interest are twice what I made by working.

I'm not mad though, I'm happy as a clam!

 

[HI Bill]

I started out after college (1983) in a small apartment with a mattress on the floor, a thrift shop couch and chair, a 13 inch b/w TV and a large wooden cable spool with a sheet over it as a table. And I had a degree and a job.

I started out after college (1991) and rented a room in other people's houses for the first 7 years. Finally, I moved to a LCOL area (Maui, at the time), and received my first decent raise. I went from saving less than $300 a month to saving ~$1K. I maintained my budget while increasing my standard of living (lucky timing), and kept on saving. I paid off my car loan 2 years early. I paid additional principal into my mortgage. I didn't splurge on much. I never incurred credit carb debt. I saved up for every toy and trip I bought. It started with a degree in one of the STEM majors, and worked into a decent job. I relocated from CA to Oahu to Maui to CA to Oahu, chasing work, and taking on additional responsibility. The relocations weren't easy, but they meant I was taking on additional responsibilities, and earning more money. I hear peole complain all the time that they can't earn much where they live. Get some training or education, and follow the work, if you want to be successful, or start your own company, and make your own success!

 

[socca]

The ugly, unspoken truth is that many people are just not earning enough money. They barely have enough to cover their daily expenses; they don’t have enough left over to be able to save.

With a nod to Aesop, there are Ants and Grasshoppers. Making societal changes that permit Grasshoppers to earn more money will not lead to greater saving / investment by these folks (by definition).

Society can also be divided into low-earners and high-earners. This gives us four possibilities:
(1) Ant / Low-Earner = not much saving
(2) Ant / High-Earner = much saving
(3) Grasshopper / Low-Earner = not much saving
(4) Grasshopper / High-Earner = not much saving .

Most of us have encountered all four of these types.

 

[audreyh1]

My savings just started make more money than I can from working. Makes me mad that lazy money out earns me. Feels like only one in twenty people understand what I'm mad about, MAYBE that is the root of the issue.

When your stash gets big enough.......

 

[ckelly78z]

I have a co-worker that complains that he can't afford to get into the 401K...he's 42 years old, single, and has 2 car payments totaling $900 a month. Until recently, he was renting with a GF, and her kids, but now has moved back home with his parents.

I make virtually the same money as him, and contribute 20% to my 401K, with no debt, and fully paid vehicles, and farm.....PRIORITIES !

 

[marko]

Doesn't matter how many of these articles come along, there are two camps of thought:

Camp 1) For a large segment of the population there's simply not enough left over, there is no "cut back and save", it's a complex problem without simple answers.

Camp 2) they are lazy spendthrifts, and should stop buying lattes and ipads they'd be fine.

There might be a third group from which I can only speak from personal experience.

Our nieces and nephews on DW's side are definitely in Camp 2 but, having an excuse for every shortcoming in their lives, claim to be in Camp 1.

A few years ago, a BIL tried to help, pointing out that they needed to cut HBO, Netflix, Showtime etc, get rid of their expensive cell phone packages, cigarettes, and twice-a-day Starbucks (and maybe stop having babies they can't afford). They squealed like pigs at the idea and practically threw him out of the house!

Their mindset is: "We're poor, so we deserve some sort of comfort that we get through these small luxuries."

They have an excuse for everything. Years ago I suggested to DN that, at 16 years old she was old enough to stop holding her dinner fork like a hammer. Her reply was "my hands are too small to do that". That's when I knew.

 

[marko]

+1

All too often people want to start economically where it took their parents 30 to 40 years to get to.

This is the quote of the week!
I also worry that we're heading down the slippery slope of believing that an early retirement is some sort of 'right' that is due everyone.

Undoubtedly true for many, but not all. I had a friend who was a VP at a fortune 500 company who did save some of his earnings for retirement, but he liked living high off the hog even more, so did not put away nearly enough. He has kept working well into his 60s to maintain his life style despite not enjoying the changing work climate.

+1
I've often mentioned here that back when DW was working, some of her co-workers making $500K a year would be bumming $50 from her until payday. Even with an ATM in the lobby, they didn't have enough cash there on a Wednesday to get them through a few days.

As I've told DW many time: Never confuse a big house with wealth.

 

[rk911]

i call BS. remember the fable “The Grasshopper and The Ant”? many folks are grasshoppers but the wise ones are ants. poor choices early in life make for bad situations later.

 

[ckelly78z]

I am waiting for the next person to say "you are so lucky to retire early". NO, luck had nothing to do with it.

-I was disciplined enough to keep the same job with a pension for 30 years.
-I was disciplined enough to start my 401K early.
-I added 1-2% of contributions each year when raises came
-We bought a nice farm, and kept it for 30 years fixing it up myself.
-We have driven -$5000 used cars for 40 years now that I paid cash for.
-We go camping rather than resort destination trips
-We have stayed happily married for 40 years (bumps along the way)
-I have overcome several major illnesses (cancer, CHF, car accident)
-We overcame a failed business attempt/near bankcruptcy 20 years ago.
-We research each purchase to get the best products/deals.
-We cook 95% of our meals at home.
-We make lists of what we need before shopping.

 

[Dtail]

I have a co-worker that complains that he can't afford to get into the 401K...he's 42 years old, single, and has 2 car payments totaling $900 a month. Until recently, he was renting with a GF, and her kids, but now has moved back home with his parents.

I make virtually the same money as him, and contribute 20% to my 401K, with no debt, and fully paid vehicles, and farm.....PRIORITIES !

Well moving back to his parents home at 42 y.o. while having a full time job says it all. Where is his pride?

 

[racy]

https://www.barrons.com/articles/why-americans-dont-save-for-retirement-51557061222

"But America’s retirement crisis wasn’t created because of character flaws or personal irresponsibility. Nor can it realistically be fixed by technocratic fixes.

The ugly, unspoken truth is that many people are just not earning enough money. They barely have enough to cover their daily expenses; they don’t have enough left over to be able to save. "

Or, is it that they are not getting personal finance education (which is what I believe). https://www.cnbc.com/2016/01/28/us-schools-get-failing-grade-for-financial-literacy-education.html

 

[steelyman]

Or, is it that they are not getting personal finance education (which is what I believe).

I think this is a big factor and hope the situation improves. I also think it would be a step forward in high school to provide two tracks: one for college-bound students and another for those who expect to go directly into the work force. However, my impression is that schools are already trying to make do with limited funds (others know a lot more about that than me).

 

[Mdlerth]

Bless their hearts (it's probably too late for their brains)

A few years ago, a BIL tried to help, pointing out that they needed to... maybe stop having babies they can't afford... They squealed like pigs at the idea and practically threw him out of the house!

I have 5 beloved nieces who went down that path. Two of them didn't even learn from their first trip to the maternity ward.

All 5 managed to find Baby Daddies, four of whom beat feet once recreation turned into procreation. I know I'm straight out of the ark, but in my day there used to be a concept called a "husband". (Not) surprisingly, there is a strong correlation between financial security and getting/staying married.