3 main reasons workers don’t save for retirement | Smart Change: Personal Finances

(Kailey Hagen)

Retirement is getting more and more expensive, so it’s best to start saving as soon as possible. Many workers know this, but a third of Americans aren’t currently putting money aside for their future, according to a recent Anytime Estimate survey.

Here are three of the most common reasons plan members give for not saving for retirement right now, along with some strategies you can use to overcome them.

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1. Not making enough money

Lack of funds was the main reason most people said they couldn’t save for retirement. About 37% of survey participants said they didn’t make enough money, while 26% said they didn’t have a job at all. This is naturally a huge obstacle, but there may be ways to work out the situation.

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First, you will need some type of job. If you don’t already have one, research employers who are hiring. If possible, see if you can find one that offers retirement benefits, such as a 401(k) with matching contribution. If a job doesn’t offer a retirement account, you may need to open an IRA on your own to save for retirement.

If you have a job but need all of your income to cover your essential bills, it might be time to think about a career change. You can also start a secondary hustle. You can decide what you do and how much you work. But some side activities have upfront or ongoing costs, and you have to decide if it’s worth it for you.

2. Being too young

About one in five workers surveyed said they felt too young to start saving for retirement. This is a common – and dangerous – misconception. Retirement might be decades away for you, but it will come sooner than you expect. And the longer you wait, the more difficult your task becomes.

Let’s say your goal is to save $1 million by age 65 and you expect an average annual rate of return of 7%. If you start saving at age 25, you only need to save about $403 per month. If you delay for a year, you will need to save an additional $30 per month to reach your goal. And if you wait until age 35 to start saving, you’ll need to save $851 a month. Over your working life, this 10-year savings window will cost you almost $113,000.

This is because the longer you wait, the less time your investments have to grow before you need to withdraw the funds. Therefore, you will have to contribute more of your own money to achieve your goal. But if you start early, you’ll have more investment income to help you out. So if you can afford to save for retirement, don’t let age stop you. Start saving right away.

3. Prioritize other investments

About a fifth of survey participants said they were not saving for retirement because they prioritized other investments. The investigation did not specify what these other investments were. Some people may choose to save in a taxable brokerage account rather than a retirement account, so they can access their funds at any age. Generally, you cannot withdraw money from retirement accounts without penalty until you reach age 59.5.

There’s nothing wrong with investing outside of a retirement account, but if you don’t plan to use the money for the foreseeable future, a retirement account is probably a better bet. They offer unique tax benefits that taxable brokerage accounts do not.

Tax-deferred retirement accounts, like 401(k)s and traditional IRAs, give you tax relief this year. If you earn $40,000 this year and put $4,000 into a traditional IRA, the government only taxes you on the remaining $36,000. But you will pay taxes on your withdrawals later.

Roth accounts give you tax relief in retirement. You pay tax on your contributions in the year you make them, but you don’t have to pay tax on your retirement withdrawals. This is usually the best way to go if you think you will be in the same tax bracket or in a higher tax bracket when you retire.

No one is forcing you to save for your retirement if you choose not to. But it’s usually best to make it a habit if you can. If you delay saving too long or contribute infrequently, you run the risk of retiring without having enough.

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