Over my career, I can tell you hundreds of stories—many showcasing textbook savings and obtaining financial independence. I can also share hundreds of stories from people I have spoken to who are approaching or living out their retirement years but are devastated and disappointed with the outcome of their finances.
Why Don’t Americans Save for Retirement?
There are several reasons Americans might cite for not saving money. These may include:
- High cost of living: Many Americans find that their incomes are barely enough to cover living expenses, such as housing, utilities, food, and transportation.
- Debt: High levels of credit card debt, student loans, and medical bills can make it difficult to set aside money for savings.
- Stagnant wages: For many, wages have not kept pace with inflation and the rising cost of living, making it harder to save.
- Lack of financial literacy: Some people may not have a good grasp of financial management, budgeting, and saving.
- Unexpected expenses: Car repairs, medical bills, job loss, or other emergencies can deplete savings and make it hard to save consistently.
- Consumer culture: A cultural emphasis on consumption and material goods can lead to spending rather than saving.
- Lifestyle choices: Some people prioritize immediate gratification and prefer to spend money on experiences or items that provide instant satisfaction rather than saving for the future.
- Economic uncertainty: Concerns about economic instability or lack of confidence in the future can lead some to prioritize short-term financial security over long-term savings.
These factors vary widely among different demographics and regions, but they collectively contribute to many Americans’ challenges when saving money.
An All Too Common American Story
Here is one story representing how it has gone for millions of Americans.
John is a 68-year-old retiree who worked as a middle manager at a manufacturing company for over 30 years. He raised three children and lived in a comfortable suburban home. Throughout his career, John earned a steady income but didn’t prioritize saving for retirement.
Lifestyle during working years
John and his family enjoyed a good standard of living. They took annual vacations, drove new cars, and frequently dined out. John believed in providing the best for his family and often prioritized immediate needs, wants, and desires over long-term savings. He contributed to his company’s 401(k) plan but only the minimum required to get the employer match.
Current financial situation
Now retired, John relies on Social Security and his modest 401(k) savings. He quickly realized that his retirement income was insufficient to maintain the lifestyle he and his wife were accustomed to. They had to downsize their home and cut back on discretionary spending significantly.
Reflection and regret
John often reflects on his financial choices. He wishes he had started saving more aggressively earlier in his career. He realizes that if he had increased his 401(k) contributions, started earlier and taken advantage of compound return, and built a more substantial nest egg, his financial situation in retirement would have been much more secure.
Impact on retirement life
The financial constraints have caused stress and anxiety for John and his wife. They worry about outliving their savings and not having enough to cover their increasing medical expenses. The lack of financial security has also limited their ability to travel and enjoy hobbies they had planned for retirement.
John feels the pressure of the situation and his wife’s slight resentment and regret for the outcome she is living out.
The Real Culprit: Short-Term Decision Making
I want to share my opinion on why so few Americans prioritize saving by breaking down the key differences between the strategies and considerations of short-term and long-term decision-making.
Short-Term Decision Making
Characteristics:
- Immediate focus: Prioritizes immediate needs and outcomes.
- Quick results: Provides fast results or immediate gratification.
- Lower risk: Often involves less risk as the time frame is shorter.
- Flexibility: Easier to adjust or change course based on immediate feedback or changes.
Examples:
- Spending: Spending money on a vacation or luxury item.
- Health: Opting for convenient fast food over a home cooked meal.
- Work: Completing urgent tasks that need immediate attention.
Pros:
- Immediate satisfaction: Provides quick rewards and gratification.
- Urgent needs: Addresses pressing issues that cannot be postponed.
- Adaptability: Allows for quick adjustments based on current circumstances.
Cons:
- Potential for regret: Immediate choices might lead to future regrets.
- Neglect of long-term goals: Important long-term objectives might be overshadowed.
- Short-lived benefits: Gains are often temporary and may not contribute to long-term success.
Long-Term Decision Making
Characteristics:
- Future focus: Emphasizes long-term goals and outcomes.
- Delayed gratification: Involves waiting for rewards and benefits.
- Higher risk: Often entails more risk due to uncertainty over a more extended period.
- Commitment: Requires sustained commitment and patience.
Examples:
- Saving: Investing in a retirement fund or saving for a home down payment.
- Health: Maintaining a balanced diet and regularly exercising for long-term wellness.
- Career: Pursuing advanced education or skills training for future career advancement.
Pros:
- Long-term benefits: Leads to significant, lasting rewards and achievements.
- Goal achievement: Helps reach major life goals and maintain financial security.
- Sustainability: Promotes sustainable practices and long-term success.
Cons:
- Delayed satisfaction: Rewards are not immediate and require patience.
- Risk of uncertainty: Long-term plans may be affected by unforeseen changes or risks.
- Commitment required: Consistent effort and dedication are necessary.
Balancing Short-Term and Long-Term Decisions
Effective decision-making requires balancing short-term needs/wants with long-term goals. However, here is the kicker: we feel the effects of short-term decisions rather quickly!
If you eat poorly and don’t exercise, your body type typically changes within weeks or months.
If you spend foolishly, how long does it take for your finances to catch up with you? It’s pretty quick in most cases.
If you don’t get enough sleep, we can all tell rather quickly.
If you cannot foster good friendships, the outcomes show rather quickly.
The same goes for the positives. If you exercise, eat healthy, spend wisely, and focus on friendships, you can see positive outcomes quickly.
Truly, we feel the effects of many of our decisions quite quickly.
The point is we all see “cause and effect” rather quickly in most aspects of our lives. However, how do you connect to your financial reality of retirement when you are 20, 30, or 40? The answer is clear—most don’t! Most Americans cannot imagine what that will be like!
There is a real psychological principle in that, though. How can one be expected to really understand something they are not “sitting in” right now? I have compassion for the conundrum and know why it’s tough!
But here’s the truth. The statistics for hitting retirement age (barring an unexpected death) are staggering. 100% of people who don’t pass away will hit retirement age! (Yea, no kidding).
Whether or not you are prepared for retirement, that’s an entirely different matter!
You Can Still Right This Ship
The majority of people do not make great long-term decisions with their retirement savings. The invitation is to presence yourself to potential outcomes that you are placing yourself (and potentially your partner) in, based on the actions or inaction you are taking right now!!
We all learn life lessons in one of two ways:
- By paying the tuition and learning the lessons ourselves.
- By learning from the experience of others.
The world is full of hundreds of millions of “Johns.” What actions would you take now to ensure you are not another one?
Regardless of income, most people enter retirement one of two ways, 1) unprepared and scattered or 2) prepared and ready. (Yes, some land somewhere in between; however, in my experience, most people are either in one camp or the other). What you need to be clear on, is this assertion – people on any income enter retirement prepared and excited about it. Your income is not the primary problem!
My strong invitation is for you to understand that you can write this story in many different ways! How will your story go? How do you want it to go? What actions will you take to create the outcome you are committed to?
You can sulk and stew about all of the factors stacked against you, or you can get busy doing what you can, and lifting your situation. There are plenty of “controllables” in your life! Start managing them and taking responsibility for how it’s going for you and your family.
Financial independence is highly rewarding. If your future self knew you deferred immediate gratification, stood committed to saving for your future, and watched your investments grow to a place where you can comfortably retire, you would relish in that accomplishment and fight like hell to get there! If you could really stand inside of your two primary scenarios (entering retirement responsibly prepared, or casually) no one could thwart your capacity and efforts to retire prepared.
Indeed, I can tell you that I have never met anyone who ever felt sad or disappointed they had responsibly saved for retirement!
If you need any help in retirement planning or investment, take advantage of Tencap’s no-cost consultation and start creating the steps you need with a licensed financial advisor.
You can do this! We can help! Start meeting with a financial advisor from Tencap, to start moving the needle and working toward financial independence, today! With an experienced advisor helping with money management, tax planning, estate planning and insurance planning, you will see why so many individuals and families have engaged our firm!
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Joe Griffin
Joe has been building and managing financial planning firms for the past 14 years. He loves the financial planning space and is very proud of the success and growth that has come from his proprietary marketing and leadership. Joe spent years being involved with the bright minds of the investment committee at Utah’s 529 college savings plan – a plan managing over 20 billion. Joe only works with firms that are stated fiduciaries on a client relationship. Joe is committed to leading a financial planning firm with ethics and integrity. The money management philosophy that Tencap subscribes to is built on strong academics and is supported by a highly impressive academic board. We can't wait to coach you on the excellence that Tencap stands for.
