Are You Saving Enough For Retirement?

I was shocked by the results of a research study done by the Lampo Group.  Only 9% of middle-class households are saving 15% of their income toward retirement.  Being a Financial Coach and involved in the finance industry, it’s not a shock that people don’t save enough for retirement, but only 9%?  I thought that number was quite low.  That means 91% of us in the middle class are not saving this amount.  I consoled myself with the possibility that a bunch of us are saving some amount, even if it was less than 15%, but that isn't going to get us to Financial Freedom.

I talk to a lot of people about this topic and have found the answers to be the same across the board.  Before we get to those answers, let’s think about the idea of saving 15% of our income.  We might ask “why 15%?”.  We might think that saving 15% is too much and we won’t need that amount of money.  We may think that saving 15% of our income is not possible with all the bills and payments we have.  Regardless of your initial reaction or belief about this 15% number, you’ll have to decide what YOU will need in retirement to not just survive but to thrive.  

Nobody wants to go into retirement with barely enough to eat, but so many people are in that exact situation (and sometimes worse).  So, how much will you need?  Do you know?  If you don’t know your number, how will you know if you are on track?  Most of us don’t know this number and just have this looming fear that retirement will never happen.  We will be forced to work until we die. Or, we plan on retiring at a specific age and whatever money we have at that time is what we have to work with, no matter how bad the situation is.  Both of these options just cause stress for the rest of your working life.  Instead, let’s make a plan based on our starting and ending points, just like we are using a map or GPS.   

Let's say that the money you currently have in retirement savings is your starting point.  The number you need in retirement when you decide to “hang up the spikes” (retire) is your destination point.  You would never go on a trip without using your GPS if you didn’t know where you wanted to end up right?  The same should be true with your retirement income/savings.  You need to know your starting point and your destination to have a successful trip.  This is the only way to know if you are on track, how long it will take, and if you are off and need a course correction.  If you would like help determining how much you'll need when you retire, we can do an assessment and create your plan together to guide you in the right direction.

So, why is it that most of us can’t get to our destination “on time”?  NOTE: The topic of investing -  what, where, and how is for another post.  We will just be talking about why we are not saving toward retirement in this post. Here are some of the biggest reasons we aren’t saving that 15% toward retirement. 

1. The cost of living is too high in the area we live in
2. Consumer debt payments is keeping us from saving
3. Our home mortgage is too high for our income
4. Health costs or medical bills are too high
5. Our lifestyle is too high
6. We don't make enough income

Take a look at this list again.  Five of the Six are directly under our control.  Health costs and medical bills we don’t actually control, but we can plan for them.  Even if we don’t know what the cost of living is going to be with inflation and other cost adjustments, in general, we should be able to plan for these costs as they have a long track record and we know we will need to put money toward them at some point.  We just need to plan ahead and stop over-extending ourselves.  This is a major key to saving for the future

My conclusion is that none of these are the real reason we aren’t saving.  Most of us in the middle class make enough money to pay our bills, have a decent lifestyle, AND save for retirement but it comes down to a lack of planning.  If we have a solid plan, we are able to do all of these things.  It’s not that the 9% are just more gifted, smarter, have more financial knowledge, or are more disciplined.  It’s because they made a plan and are executing that plan.  I talk all the time about my 3-step process for winning with money.  Dream.  Plan.  Execute.  Intentionality is the only way we will succeed.  Most of us are just disorganized and that causes us to overspend and lose track of what is more important.

If I gave you a choice of retiring well with several million dollars in your account or $100 per month to eat out, buy coffee, toys, or waste on items you won’t use a year from now, most of us will pick retirement right?  But we don’t view it that way at the moment we go to spend money.  We are people of "immediate gratification".  We want something and we want it now!  So, when we are in line at the store, the restaurant, or coffee shop, we aren’t thinking about how much that item is costing us in the future, we are just thinking about that Latte and how warm and tasty it is going to be, or how cool we will look in that new outfit, or how great we will feel when we go on that vacation. This is called opportunity cost. 

Opportunity cost is just what it sounds like.  We have the opportunity to buy one thing OR another, but not both.  If I have $10 to spend, I can buy a tasty sandwich.  But if I buy that sandwich, I can’t put that money into savings at the same time.  Or, if I have $100 per month, I can spend it on my cable or phone bill, but if I do that, I won't be able to fund my kids' college with that same $100.  Put a bunch of these situations together each month and our intentions of saving and investing dwindle away when we run out of money.  We decide that we’ll do better next month.  Then what happens next month?  You get the picture. That cycle repeats and repeats, and before you know it, it turns into years without saving or investing the proper amount and we end up at retirement with far less than is needed for the life we want to live.  I’m not trying to scare you into saving money (well, maybe a little), but my goal is to provide you with knowledge and inspiration which will empower you to take control of your life and your money.

Once you have the knowledge, you will gain the power.  When you have power, you can accomplish your goals.

Let’s work together to get you on a plan so you don’t have to live with the fear and anxiety that more than 90% of us live with, and so you can have that life you want to live after you stop working.