Even though most Americans know they should be saving a significant portion of their income for the future, report after report shows that they aren’t. According to a recent survey from Bankrate.com, 19% of respondents said they save nothing for retirement, and 21% indicated saving 5% or less of what they earn.
The average worker needs to save a minimum of 10% to 15% over multiple decades in order to accumulate enough money to retire comfortably. However, only 16% of the Bankrate survey respondents said they save that much.
We’re all at different stages in our financial lives. Maybe you’re a new graduate just starting your career. Perhaps you’re just getting back on your feet financially after experiencing a hardship. Even if you’re in great shape financially, anything you can do to save more is a boon.
When I talk to people about their financial goals, having enough money to retire at a desired age and lifestyle is their number one aspiration. They don’t want to be forced to work into old age or to live on much less than they do now.
Many people dream about having the financial freedom in retirement to live where they want, travel when they want, or volunteer full-time in their community. Having more financial security increases your retirement options and gives you more peace of mind.
If you’re woefully behind on saving, I’m sure you have your reasons. In this article, I’ll review three common excuses that can keep you poor, and how to overcome them. You’ll get solid solutions to save more for retirement, no matter how much or little money you have.
3 Excuses Keeping You from Saving for Retirement
- You plan to start saving when you earn more money.
- You don’t have a retirement savings plan at work.
- You’re afraid of losing money.
Let’s review these common reasons why you may not be saving for retirement and easy ways to overcome your excuses.
1. You plan to start saving when you earn more money.
I really understand this excuse, because it used to be my reason for not saving when I started working. You might think that because you’re young, have an entry-level job, or are starting a business, that you deserve a pass on saving.
No matter if it’s a fact or just a hope that you’ll earn more down the road, it’s never a valid reason to put off saving. Problem is, trying to catch up later usually doesn’t work.
The later you start saving, the more you have to save to reach your goals. Likewise, starting early allows you to save less and still end up with a bigger balance. It’s just a mathematical fact that you need both time and a good investment return in order to build wealth.
For example, let’s say you’re 27 years old and want to quit working at age 67, when you’re eligible for full Social Security retirement benefits. If you save about $400 a month or $5,000 per year, and earn a 7% average return, your retirement account would be worth $1.1 million. You’d contribute a total of $200,000 (40 years x $5,000) out of pocket.
Procrastination is expensive.
But if you wait until age 37 to start saving (the same amount with the same return), your account would be worth less than half, or $500,000, when you’re 67. To have a 7-figure retirement, you’d have to invest $900 a month or almost $11,000 per year, from age 37 to 67.
Delaying your savings by 10 years means you must contribute $325,000, which is $125,000 more than if you had started investing a decade earlier. In other words, procrastination is expensive.
Saving early, even small amounts, is incredibly powerful because your balance mushrooms over time. It’s like the riddle you’ve probably heard about whether it’s better to accept an offer of $1 million, or to take a penny that doubles in value every day for 30 days.
Surprisingly, the pennies are the smart choice because they add up to more than $5.3 million by the 30th day!
- Day 1: $.01
- Day 2: $.02
- Day 3: $.04
- Day 4: $.08
- Day 5: $.16
- Day 6: $.32
- Day 7: $.64
- Day 8: $1.28
- Day 9: $2.56
- Day 10: $5.12
- Day 11: $10.24
- Day 12: $20.48
- Day 13: $40.96
- Day 14: $81.92
- Day 15: $163.84
- Day 16: $327.68
- Day 17: $655.36
- Day 18: $1,310.72
- Day 19: $2,621.44
- Day 20: $5,242.88
- Day 21: $10,485.76
- Day 22: $20,971.52
- Day 23: $41,943.04
- Day 24: $83,886.08
- Day 25: $167,772.16
- Day 26: $335,544.32
- Day 27: $671,088.64
- Day 28: $1,342,177.28
- Day 29: $2,684,354.56
- Day 30: $5,368,709.12
Putting time on your side can explode your wealth due to the power of compounding interest. It allows your investment balance to grow exponentially as you earn interest on interest that you already earned. This is the secret to creating a massive retirement nest egg!
If you’re struggling to save, you simply have to find ways to earn more, spend less, or do both. Review your expenses objectively and cut every unnecessary cost that you can. Sometimes reducing your largest expenses, such as housing and transportation, is the key to freeing up more money.
Even if you can’t save as much as you’d like, get in the habit of saving something, even if it’s just 1% of your gross income. If you earn $30,000, saving 1% comes to $300 a year or $25 a month.
There’s no shame in starting small, nor is there a requirement to invest consistently, although that’s what I recommend. You’re eligible to participate in a retirement account even if you make tiny deposits or choose to temporarily stop making them.
Creating the habit of saving is more important than the amount you save. Once you start and see your account balance grow, you’ll get excited about building wealth and have the confidence to maintain momentum. Make a goal to just get started and increase your savings rate over time.
Stop using excuses like, I don’t make enough money, my expenses are too high, or I’ll start saving later on. If you wait for a someday raise, bonus, or windfall, you’re burning precious time, which is hazardous to your financial future.
2. You don’t have a retirement savings plan at work.
Having a retirement plan at work—such as a traditional or a Roth 401k—is terrific, especially if your employer offers free matching funds to incentivize participation.
For example, if you earn $40,000 a year and save 10%, that equals $4,000 a year. If you invested that amount consistently for 40 years and earned 7% on average, you’d have a nest egg worth $875,000.
If your company matches contributions up to 3% of your salary, it adds $1,200 (3% of $40,000) a year to your account. Now you’d be saving a total of $5,200 ($4,000 plus $1,200) a year, which would give you more than $1.1 million in 40 years. That’s an extra quarter of a million to spend in retirement thanks to free matching funds!
You (and a non-working spouse) can have an Individual Retirement Arrangement (IRA) no matter where you work.
Even if your employer doesn’t match contributions, I’m still a big fan of using a workplace retirement account because it comes with multiple benefits. These plans automate investing by deducting contributions directly from your paycheck, give you federal legal protections, have high annual contribution limits, and don’t have income limits.
But if you don’t have a retirement plan at work, don’t despair or use it as an excuse not to save. You (and a non-working spouse) can have an Individual Retirement Arrangement (IRA) no matter where you work. If you work for yourself, there are a variety of retirement accounts for the self-employed—such as a solo 401k, SEP-IRA, or SIMPLE IRA—designed just for you.
If you have a retirement account at work, that should be your go-to account. But if you don’t, find out which types of retirement accounts you’re eligible for. Contribute as much as you can and slowly increase your saving rate until you max them out.
To learn more about retirement accounts and the best places to open them, the Retirement Account Comparison Chart is a free, one-page resource that you may find helpful.
3. You’re afraid of losing money.
If you aren’t saving because you’re scared of investment risk, it’s time to take a step back and look at the big picture. Yes, investing means that you could possibly lose money. However, you can easily cut risk by choosing the right types of investments. I’ll tell you more in a moment.
If your goal is to have a nest egg that allows you to stop working and maintain your lifestyle in retirement, keeping money in a safe place—like a savings account or a low-yield CD—simply won’t get you there.
For example, if you save $5,000 a year for 40 years in a bank account with an average return of 1%, you’ll accumulate less than $250,000. But if you invest the same amount over four decades at a 7% return, you’ll have more than $1 million.
That could certainly make the difference between scraping by or being comfortable in retirement. Therefore, taking calculated investment risk is an important part of your financial life. Without it, your money won’t grow fast enough to achieve your long-term goals.
Your investment options will vary from company to company, but the best investment strategy is called diversification. It allows you to earn higher average returns while reducing risk, because you own hundreds or thousands of investments and it’s not likely that all of them could drop in value at the same time. If the price of one stock in a fund takes a dive, it’s no big deal because you own many others that may be holding steady or going up.
In contrast, if you put your life’s savings into one technology stock and it tanks, you’re in trouble. But if that stock only makes up a fraction of your portfolio, the loss is negligible. Having a mix of investments that respond to market conditions in different ways is the key to smoothing out risk.
The best investment choices are mutual funds, index funds, and exchange-traded funds (ETFs) because they own hundreds or thousands of underlying investments, which gives you instance, built-in diversification.
If you have more than 10 years before retirement, choosing funds made up primarily of stocks, or labeled as growth funds, is the best way to get an optimal return on your investment.
Many retirement accounts offer target date funds that invest based on the year when you plan to retire. For example, if you want to retire in 2040, the name of the fund would be something like “Target Date 2040 Index Fund.”
Target date funds are diversified and very convenient because they automatically rebalance on a periodic basis to achieve growth in the early years, but then become more conservative as you approach retirement.
See also: 7 Micro Habits That Create Financial Success
The Secret to Building Wealth
The saying time is money and the early bird gets the worm are absolute truths when it comes to building wealth. Investors who start late usually have to make huge financial sacrifices to accumulate enough money to reach their goals—or they’re forced to work much longer than they want to.
If you haven’t started saving, don’t beat yourself up about it. The key factors you can control are opening a retirement account and starting small.
If you’re living paycheck to paycheck, figure out how to ruthlessly cut your spending so you can come up with more money to save. Consider increasing your income with a second job or side gig.
Whether you avoid risk intentionally or have simply been procrastinating saving, the result could be devastating to your financial future. The reality is that not taking enough investment risk might actually be the riskiest move of all.
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Procrastination image courtesy of Shutterstock
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