Why People Don’t Save Enough for Retirement

Household net worth is higher than ever.

House prices are higher than ever.

The stock market is near record highs.

But not everyone is happy with their finances.

Below you can see the average pension balances by age, along with the percentage of each group who feel they are on track with their pension:

The good news is that confidence increases as you get older. The bad news is that the percentage of people who think their retirement savings are on track does not reach 50% for any age group.

Part of this stems from the fact that some people will never feel like they have enough. For many households, retirement is a daunting prospect. There are countless uncertainties involved in the process.

But of course there are also plenty of people who have not saved enough.

Why is this?

Here are some of the top reasons why some people haven’t saved enough money for retirement:

You don’t make enough money. This is probably the biggest reason why most households don’t have enough retirement savings. Some people simply don’t earn enough to have any money left over.

There are people who are into personal finance who would have you believe that it is all bad habits that cause people to not save enough money for retirement.

Many people have no money left after making necessary expenses.

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 change your investments?

It can be an overwhelming process if you are not good at personal finance or if you don’t have help.

You procrastinate. For most people, retirement is still a long way off. When you prioritize your finances, it’s much easier to focus on the things that feel more urgent at the time.

I’ll just start saving when I’m ready.

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

You don’t know how to save. Some people are in a bad financial situation.

You spend too much money. You can’t or won’t budget properly. It’s hard to delay gratification.

This doesn’t apply to everyone, but some people are just bad with money.

You have family obligations. As a parent, I understand 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.

The Wall Street Journal’s Will Flannigan wrote a refreshingly honest article on this topic this week:

Here is his explanation:

Like many people of my generation, I have fallen behind on my retirement savings. The combination of entering the workforce during the financial crisis and the burden of student debt has put me and many others behind from the start. And the higher cost of living in recent years has only made saving harder. Once you fall behind a little, it’s easy to fall further and further behind.

This section about his friends and their retirement savings touched on the impact children can have on this equation:

Since then, they’ve bought a house, had two kids, and started small businesses. Still, the amount they put away for retirement is a few hundred dollars a month at most. “There’s never been a point where we felt 100 percent confident about saving more money because life happens“We had children, if something happened to our house, or if we changed jobs,” says Jamie, now 36.

For Jamie and Anna, it’s a matter of making tough choices. “There was a period where we were almost taking money out of our retirement savings,” he says. “Do we sacrifice our retirement to pay for our kids’ education? We don’t know what’s best.”

Life happens.

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

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

You just need to load up your savings once the kids are out of the house, and once they’re off your payroll, you can use the money you spent on college or whatever to catch up.

You won’t get the same compound benefits, but you can still save for retirement.

In Everything you need to know about saving for your retirement I wrote about how doubling your savings rate over 10, 15, and 20 years would produce better results than doubling your investment returns:

If you’re behind on your retirement savings because life is getting in your way, all is not lost.

You just have to make it a priority.

Your children will thank you for it later, so they won’t have to take care of you anymore.

Read more:
You probably need less money than you think for your retirement