The Retirement Conundrum

A recent Bankrate.com study widely reported on Monday, August 18, 2014 said 36 percent of Americans have $0 saved for retirement and 36 percent of working Americans have $1,000 or less saved for retirement. Amazingly, 14 percent of people age 65 and older have less than $1,000 set aside for retirement, and a “well duh” moment occurs when we learn that percentage increases with the decrease in age.

What is happening? Why won’t Americans save for retirement? This study shouldn’t surprise us. We have heard it all before. Every few months a different publication, university or study shows the same data.

We do not subscribe to the belief that Americans are stupid. We believe most Americans are smart, at least smart enough to look out for their own best interest. If this is the case, what explains Bankrate’s not all that unique findings? We think it must be one of two reasons. Either most American’s, for one reason or another, cannot adequately save for retirement or most Americans are too focused on the here and now.

Americans Cannot Adequately Save for Retirement

The first plausible reason is that Americans cannot adequately save for retirement. It is no great secret that the average American’s wage, those in middle and lower income classes, has been at best stagnant and  at the worst dropping since the 1970s. The median household income in 1984, according to the Census Bureau, was $22,415. Median household income as of June 2014 was $53,891. That is an in-crease of 140 percent. At first that seems like a big increase, but consider how many households were dual incomes in 1984. In 1984, 6 out of every 10 mothers with kids under 18 were working, in 2012 that number jumped to 71 percent. With more people in the house earning money, shouldn’t that mean Americans can afford to save?

Ponder this:

• The median cost of a new home sold in July 1984 for $80,700 while today the median cost of a new home is up 234 percent to $269,800.
• The annual cost to own a car is currently $9,122, 82 percent more than in 1984.
• The cost to send a student to a four-year in-state college is now $18,391. That is 616 percent more than in 1984.
• The cost of the price of eggs today is $2.00, 100 percent higher than in 1984. Yea chickens!
• In 1984, the minority of families paid just over $33 a month towards their health care plan, while most had 100 percent covered by their employer. Today the average family pays over $16,000 toward health care costs annually, or about $1,350 a month. That is increase of over 3,870 percent!

The facts suggest that most Americans may simply not be able to afford to save for retirement over the course of a career because they are too busy trying to keep their heads above water. These facts may suggest that retirement savings may just be a pipe dream for many.

Americans Are Too Focused on the Here and Now

Another reason why most Americans may be ignoring their retirement is because they are too focused on the here and now. Americans may much rather enjoy today than prepare for tomorrow.

Consider the following increases:

• The size of the average home has increased to 2,736 in 2014 from 1,605 in 1984.
• Today’s family is spending $90-120 to watch TV. My dad complained about a $12 a month cable bill in 1984 that included HBO.
• The average woman owns 20 pairs of shoes, but only wears 5 regularly.
• Today’s Americans eat out at a restaurant nearly 5 times a week.

What do these numbers tell us? The cost of most things that we “need” or choose to purchase are in-creasing. In addition, consider all of the items that we see as essential that we didn’t in 1984; cell phones, Wi-Fi, personal computers, dining out more than once a week and your daily $5 coffee.

These facts suggest that Americans may be like the Grasshopper in Aesop’s Fable The Ant and the Grasshopper who said, “Why bother about winter? We have plenty of food at present.” Because of this belief, the Grasshopper eventually learned its lesson, maybe too late.

We presented two possible reasons why studies continue to show that Americans are not adequately saving for retirement. A third and more likely possibility exists. That possibility is a combination of the two.

It could be that most Americans are trying to get by one day at a time, keeping their head above water, and planning for some hard to imagine date in the future takes more effort than it is seemingly worth.

None of these reasons bode well for the future, especially because $1 million saved for retirement today, let alone $25,000, is no longer sufficient.

There is much that Americans can and should do to prepared for retirement. Determining the right plan, knowing what is important and learning how to adjust our life expectations are a few. For those of us with a platform, it is vital that we spread the message of preparedness not only for our own benefit, but for the well being of the American family.

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Comment List

  • Stefanie 15 / 09 / 2014 Reply

    We suck at long term thinking. The numbers on retirement and obesity are both clear indicators.

    • John Schneider 18 / 09 / 2014 Reply

      We totally agree. We often talk about how the fundamentals of losing weight and avoiding debt are similar. Thanks for posting and have fun at FINCON! We hope to make it next year.

  • Adrian 22 / 09 / 2015 Reply

    I was fine with the article until you said that retiring on $1m wasn’t enough. I beg to differ. Just ssk the FIRE crew.

    • David Auten 23 / 09 / 2015 Reply

      I think that everyone has a different number. For the two of us, we want to pass on some healthy inheritance to our nieces and my step-son. This means that we have to pad our retirement pockets a bit more. Plus with the way inflation has crept up over the past 30 years, I can’t imagine that $1MM will be the number many people think it is in 20 years. Our goal has always been to have a better lifestyle when we retire than when we are working, so we plan to be more frugal now and play/spend more later.

      Although I do agree with you that for many today and in the future $1MM will be plenty.

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