December 6, 2010

Retirement Savings: Why Is It So Hard?

Yes, that is a bell from the Titanic. But, this isn't going to be a post where I pull out all sorts of scary statistics about our lack of savings and the looming disaster ahead as millions of Boomers join the already-retired. I'm not going to give you a detailed plan for having a financially comfortable, satisfying retirement. There are thousands of web sites, blogs, and books that can help you with financial planning if that is what you decide you need.

What I would like to do is offer some reasons why we simply can't seem to do what we know we must do: save enough for our post-working life. If we recognize what the obstacles are there is a chance (slim, but a chance) that this iceberg dead ahead can be avoided.

I ran across an article by Jennifer Derrick from a few months ago. On the web site,, she offered an interesting explanation of what may be part of the problem:

"It’s only been in the last two hundred years or so that technology and medical care have evolved to the point where we now have the luxury to think about the future. Unfortunately, now that we can think about the future, we aren’t fully prepared to deal with it. We have no trouble envisioning the future and thinking about it in abstract terms. However, when it comes to taking action, we are still hampered by our ancient selves. We want to take action and we know we should, but the ancient part of our brain is still saying, “Why bother? We might not be here tomorrow and, even if we are, the future is so far away as to be less important than what’s going on today."

Her point would explain why various levels of government can acknowledge a problem but can only agree to delay a solution until someone else has to worry about it. As far as saving for retirement I'm not sure I fully accept her argument that it is really a question of evolution, that we are not prepared to think about the future in action-oriented terms. But, she raises an interesting argument.

Whatever the cause, the fact is clear: the majority of us do not save enough for our financial health. I have a few ideas why I believe this is a problem in search of a solution. See if any of these make sense to you.

Expenses will be lower when we retire

This argument has been "common knowledge" for decades. It sounds reasonable. After all, your clothing, lunch expenses, and commuting costs will certainly be less if you aren't going to work everyday. It is likely you won't be paying for your kids' education or other expenses.

But, I think the premise is dangerously flawed. No matter how good your health insurance or what happens in 2014 your health care costs will go up as you age. A study just released says that a couple over 65, even with Medicare and Part D coverage, will need close to $200,000 to pay for their care. You will continue to buy cars and probably pay on your mortgage at least part way into your retirement. You are likely to travel more and spend more on entertainment. Food, cable and phone costs, heating and cooling...all the normal expenses of living will not decrease when you stop working, they will continue to increase just as they always have.

I can work as long as I want to make extra money

If your present position seems safe, talk to any of the millions of unemployed who thought they were secure. The economy is undergoing a drastic change and isn't likely to ever go back. More productivity with fewer employees is the new norm. You may not have any say in the matter.

A much more realistic appraisal is to assume you won't have full control over when you retire, so preparing while still working is the only prudent decision you can make. If you are thinking about part time employment even that is difficult if you are over 50. Too many people are chasing too few jobs and will settle for whatever they can get.

The future is out of my control so what can I do?

The events of the last few years certainly seems to support this argument. The rules we play by are quite different from the rules the big boys adhere to. All our planning and investments can be wiped out and we can do nothing to stop it. So, why not just live for today?

OK, but who takes care of you tomorrow? This approach assumes society, or a rich relative, or someone, will be there when that future does arrive. That strikes me as a huge gamble.

My parents will leave me a lot of money

Maybe, maybe not. Are they completely immune to bad investments or failing health with large bills? Can you really build your future around an undetermined amount of money you may inherit at some point in the future?

My parents are likely to leave me and my two brothers an amount that will help the three of us tremendously. But, I didn't retire ten years ago with that as a cornerstone of my plans. When it happen, if it happens, it will be very welcome. But, I will be fine without it.

I'm already retired. My worries are over

The need to save, invest, budget, adjust, and look for alternative sources of income doesn't stop when you retire or when that first Social Security check arrives. The need to monitor your financial well-being and do what is needed to stay healthy never stops. Financial planning is as necessary at 70 or 80 as it is at 30 or 40.

Add to the above excuses the fact that giving up something today so we have something tomorrow is unpleasant. It goes against our instinct for procrastination and instant gratification. But, just like the unsinkable ship whose bell was pulled up from the bottom of the ocean, nothing is unsinkable. Saving and investing for a satisfying retirement is as required as having enough lifeboats aboard the Titanic.

So, what's in your wallet?

Instant Update: December 6th Wall Street Journal features story entitled, "Retiring in 10 Years? Uh-Oh."  The author addresses the same issues as this post.  

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  1. I've been thinking a lot about the "expenses will be lower" part.
    We have always lived on whatever we brought in. We are slowly adjusting to our new reality. It is not an unpleasant one- but it is much tighter than a year ago when we brought in MUCH more income.
    That reality has brought about a thought process of saving energy. It has also helped us be a bit more open with our kids. We cannot help them as we have in the past. These discussions are good, necessary and difficult.
    We can easily live on what we bring in. Having those discussions now will enable us to live on this income for many years to come.
    I have to admit- the health care thing is a bit scary. We have that golden parachute health care- but what happens when that is taxed or it simply goes away?
    Then I move into your last column- I just cannot worry about everything.

  2. Maybe those of us that were nerdy accountants had an advantage here. I always got a huge amount of pleasure watching my savings increase each month and projecting that forward to what it would translate to several years in the future. Feeling that security (and picturing what it meant too my future) was more pleasurable to me than the thrill of buying something new.

    Some people may view that negatively as too "money oriented" but I view overspending on material items as too money oriented.

  3. I wake up to 2 comments already...that's a nice "good morning."

    Janette, your proactive approach puts you in the minority. You and your husband recognized what had to be done and did it. I imagine telling the kids to expect a bit less help was tough. But, I think most children are quite understanding and actually appreciate the chance to help makes things work.

    I do envy your full-featured health plan. Both my wife and I have had to purchase on the individual market our entire married life. Coverage is weak and costs excessive. Her policy just increased 18% stating January 1st, and that happens virtually every year. We spend almost 25% of our yearly budget on health care and both of us are healthy. Medicare can't come quickly enough for me!

    So, as you noted, smile and keep on truckin' (does that expression date me?)

  4. Hi Sydney,

    Nice to see your fresh posts over the past few days. I miss your presence.

    Anyone who thinks you are too money-oriented because you and Doug actively managed your resources are same people who wake up at retirement completely unprepared.

    Delayed gratification is a topic more parents, schools, and media outlets should be teaching. It is a foreign concept to many.

  5. The opportunity to work as long as we want is changing as you say. Technology is doing what it is supposed to do - making companies more efficient so they need less people to do more. Many of these lost positions will not be filled even after things get "back on track". The other side is how your health - mental and physical - will be holding up as you enter your later years. Some of us will just not have it in us to keep on working.

  6. The point about working in our later years is one I can relate to. My business finally closed in 2001 because of a radical change in the radio business that left independent consultants unneeded.

    But, for the 3-4 years before that I was becoming increasingly stale and dissatisfied with my business and the industry. After 30 years of it I was burned out, mentally and emotionally. My attitude certainly hastened the decline of the business.

  7. I think what you are describing is inextricably linked to the pervasive culture of debt and lack of accountability. We have become a debt-based society, so saving ahead is just not something that is ingrained in us anymore. On top of that, we seem to have abdicated a large part of the responsibility for our lives. We expect a perfect life and if we don't get it, someone else is responsible and is going to pay for it.

    I consulted over several years with a financial planner, an accountant, an insurance agent, and everyone else I could grab before deciding to retire. I've tracked all my spending and expenses over the last two years. I live debt free. In spite of their assurances that I am prepared to retire and I can afford it, still....

    So I'm probably on the other end of the spectrum!

  8. I'm afraid you are right, Galen. We want what we want when we want it, at little or no cost to ourselves. The Federal deficit is a good example. Everyone seems to understand it must be brought under control, but not if a favorite program is affected or we have to pay more. We want everyone else to sacrifice.

    Debt free..congratulations. You are well on your way to a satisfying retirement.

  9. Hi Bob.

    Are you familiar with the Stanford marshmallow study? It fits in well with this post. See

  10. If I did only one thing right in my life, I treated adding to my savings as a monthly expense. Even being retired, we still do the same. It has certainly made a difference!

  11. Hi J,

    I went the web site you listed and looked at the study. Fascinating that behavior at such a young age could be so predictive of future behavior. And, yes, it fits this post perfectly.

    Thanks, so much for bringing it to my attention.


    Still adding to savings each month after retirement...good for you. That is a very smart decision. You are ahead of me on this count.

  12. Then, of course, there is my excuse. I just put the future out of my mind. Since I can't control the present and I seem to be coping, the Alfred E. Newman approach is what I take. If I had the energy I would try to relate the post you site to Godin's lizard brain. They seem related. Maybe I'll think about it tomorrow.

  13. I was toying with a reference to Alfred E. Newman in the post, but decided there was high probability that many wouldn't know who I was referring to.

  14. I'm a reformed marshmallow grabber, though I never took on large amounts of debt. I didn't start really saving until I was 35. But having lived on very small sums at times, I can save with a vengence when I set my mind to it.

    Still it is important to balance some delayed gratification with some fun for today. Life is too short to leave it all for the future.


  15. Your last line is important. My wife and I are talking about a more aggressive travel schedule for next year. We've seen too many friends and family members wait until "tomorrow" only to find out that by then their health won't allow it.

    Isn't it about moderation and balance with personal responsibility for your situation?

  16. Bob,
    I'm hopeless when it comes to saving and any sort of financial planning. This article is a wake up call though! I was astounded when I read this: "A study just released says that a couple over 65, even with Medicare and Part D coverage, will need close to $200,000 to pay for their care." What happens to the people who don't have 200,000?

    Thanks for the knock on the head.

  17. Hi Sandra,

    Yes, it is more than a little scary to know that, even with Medicare and prescription drug coverage there is still a huge amount of money needed. Most of us forget that Medicare doesn't pay for everything and does have a 20% copay requirement plus monthly charges.

    What happens to those without $200,000? Good question. I guess they forgo needed care and pills, cut back on other items like food and shelter, and do the best they can.


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