1. No CONCEPT of Deferred Gratification
When you are planning for your retirement, you will have to cut down on your non-essential expenses of today. For example, contributing to a 401(k) plan or maintaining other types of retirement accounts would ask you to say “no” to eating out, a new car purchase or not buying the latest gadget. Many people don’t like the idea of immediate gratification and saving for the unknown.
2. Lack of Pension Funds
There was a time when employers needed to maintain a pension fund for employees. Over the years, and due to financial constraints and politics, many organizations have stopped creating such funds. Also, many people lack basic financial knowledge and fail to create an emergency fund or a savings account to save up for any unexpected expense.
3. Mindless Consumerism
Our economy is not being run on a “need to buy” basis. Fancy marketing, traditional media and social media has us thinking we need to have the latest everything and keep up with the Joneses. It is, in fact, people’s desire for new things that results in high levels of consumerism. One of the main reasons for lack of savings among Americans is the desire to live beyond their means and/or own things they don’t even need. When a person sees their neighbor riding around in the latest car, they set out to buy one for themselves, even if the price of the car is not affordable. People want to live like they are rich even if they are not. For that piece of luxury, they don’t mind being neck-deep in debts or risking starvation in their retirement years.
4. Flexible Policies
Previously, financial institutions offered fixed savings accounts only, which meant that people couldn’t withdraw funds deposited in the accounts. Now, however, the U.S. allows people to withdraw money from their accounts. This flexibility, unfortunately, has translated into the rapid draining of retirement accounts. In countries like Canada, Germany and the UK, people are not allowed to withdraw the money other than in extreme circumstances. This implies that many Americans don’t save money because of easy withdrawal policies.
5. Mortgage Debt
The U.S. saw a period of market economic growth in the 1990s. Businesses were bustling and people were spending more, however, this period was followed by a drop in savings. One of the reasons for this decline is said to be mortgage debt payments. Many people used their credit to buy houses, leading to a high mortgage debt. After the 2008 crash, however, many people lost all of the savings that they put into buying those homes.
6. No Guidance
Many people still don’t understand the importance of consulting with a financial advisor. A financial advisor helps people plan their finances in a better manner and may introduce them to different ways to invest their money. People of all ages may want to connect with a financial advisor to manage their finances efficiently and save money for the future.
How to Save Money for Retirement Funds
Americans, in large numbers, have been thinking about working after retirement, not because they want to, but because they have to. It is not too late for people who are in their 40s or 50s to invest in their future. They can still save some amount of money for a time when they may not physically be able to work anymore.
1. Decide on How Much You Need
Everybody has a unique set of needs, including healthcare-related costs and a lifestyle they must maintain. How much money you should save depends on what expenses you are likely to have in the future. People who are under 50 are allowed to save $19,500 per year in their 401(k) accounts (as of 2020). In addition, if you qualify, you may be able to open a Roth IRA account and add extra money each year to your retirement funds. Roth IRA contributions grow tax-free.
2. Don’t Take Too MUCH Risk
Had you started investing in your retirement accounts when you started your first job way back when, you may have been in a position to take on more risk. However, now that you may be close to retirement age, you cannot take on risk as if you were 20. You should now be focused on keeping your money safe and mitigating risk.
3. Cash-only Purchases
Most of us have the habit of buying things on credit. While this is a great way to buy things that we cannot otherwise afford, it does create debt. If you are planning to relax in your post-retirement life and experience less potential stress, you may want to cut down on your expenses. Paying monthly installments should be the first expense to go. From now on, minimize debt and do your best to live a debt free lifestyle.
4. Buy Insurance
Unfortunate bad things can happen to good people. Hurricanes. Fires. Floods. Car accidents. As you age, you may also have to deal with unexpected healthcare challenges. Insurance such as car insurance, healthcare insurance and even life insurance are potential ways to cushion the financial impact of any unexpected incident.
The Final Word
The Coronavirus pandemic has revealed the cracks in our American economy. Not everything is the direct result of the virus or the government-mandated lockdown. People’s habits, long before the pandemic, had always been more on the spending side. To have a more “care-free” retirement lifestyle, it’s time you paid attention to saving more. Spend less now may mean having more later.