October 29, 2017

Saving for Retirement: Why Is It A Struggle?

This isn't going to be a post where I pull out all sorts of scary statistics about our lack of savings and the problems 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 that these problems can be minimized.

I ran across an article by Jennifer Derrick from several years ago on her web site, SavingsAdvice.com. 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 if taken without thinking about your own situation. No matter how good your health insurance or what happens in the future with Congress, 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 $250,000 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. My experience does show a noticeable drop in expenses after retirement, but it did not happen automatically. It took judicious cuts.

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 has undergone a drastic change over the past decade and a half 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 may be difficult if you are over 50. Certainly, it can be done, and an increasing number of seniors are finding work. But, something close to minimum wage and part time is the most likely option.

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

The events since 2008 certainly seem 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 very little 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 did leave me and my two brothers an amount that will help the three of us (and our kids) tremendously. But, I didn't retire 16 years ago with that as a cornerstone of my plans. When it happened it was very welcome. But, I didn't build my future around 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. If you missed it, review Should You Continue To Invest After Retirement?

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 infamous Titanic, nothing is unsinkable. Saving and investing for a satisfying retirement are a must.

So, how do your plans look?


  1. Why don’t we save when we know we should?
    It’s a whole field of study but to geek out on you… “Given two similar rewards, humans show a preference for one that arrives sooner rather than later. Humans are said to discount the value of the later reward, by a factor that increases with the length of the delay. This is hyperbolic discounting and is one of the cornerstones of behavioral economics.”
    Copied from Wikipedia => https://en.wikipedia.org/wiki/Hyperbolic_discounting

    Another way of saying it is: “A bird in the hand is worth two in the bush”. We might know it’ll be two in the hand in the future but we inherently discount that. It takes a lot of struggle and will power to overcome what is, at its core, human nature.
    If you are interested see the work of Amos Tversky & Daniel Kahneman (awarded the 2002 Nobel Prize in Economic Sciences) as well Richard Thaler (awarded the 2017 Nobel Prize in Economic Sciences.)

    Here’s my thoughts on a few of your other comments

    Expenses will be lower when we retire
    If your mortgage is paid and the kids are off and independent then I agree expenses will be lower. Not zero but lower. As you say, car food, cable and phone, heating, etc. will remain about the same. Travel expenses will likely go up, they have for me, though I expect that will go down later in my retirement. Still not having a mortgage and no kids to pay for has reduced expenses as has not needing to save for retirement any longer (it really does free up a lot of cash when you aren't furiously saving for retirement). If you are retiring with a mortgage and kids at home then it’s going to be difficult.

    I can work as long as I want to make extra money
    Good luck with that one. Planning on working until 70? Take a look around at work. How many 70-year-olds do you see? When I retired at 62 I was the oldest person at the company and they employed about 800 people. Most were restructured out the door in their late 50s.

    The future is out of my control so what can I do?
    It’s true the future is out of your control, however, look at the statistics, believe them, and act on them. First off, while that proverbial bus that hits you may be just around the corner, it's not a good idea to have dying young as your retirement plan. Statistics say most of us are going to make it just as statistics say sensible retirement investments generally do what they are supposed to do, perhaps with a few bumps in the road along the way but you get there.

    1. I know when I stopped consulting radio stations at 52 when my business closed down I was already feeling out of step in a business that demands keeping up with the latest music trends. After the early 90's music I was losing the ability to pick the hits. The music just didn't make much sense to me so I couldn't tell others what to play. My days were numbered!

  2. This is so spot on, Bob. Even today, when I know we have saved and prepared for a lifetime, I worry occasionally if we've done enough. I have so many friends who have spent money like crazy during their working careers, and now that we have entered retirement, are needing to clip coupons just to get by. So difficult for many of them. They are the ones who failed to save for exactly the reasons you spelled out. Thanks for a great post! ~ Lynn

    1. If life's situations causes someone to struggle, they have my empathy and good wishes. If someone spent money they didn't have, refused to save and invest, and lurched into retirement unprepared, not so much.

  3. One piece of advice that has proven valuable to me: For a month (or more if you can stand it), keep a log of *everything* you spend. Unless you're extremely self-aware or extremely frugal, you'll be surprised at all those "leaks" in your budget that you overlook (or more accurately, want to overlook). I found that a surprising portion of my spending was entirely discretionary and able to be eliminated. Subscriptions? Amazon Prime purchases? New seasonal clothes? We all get caught up in the ever-more-sophisticated marketing machine, even though we think we're too smart for that!

    1. Companies like Amazon have made is so easy to gratify a desire or want instantly. Humans are not very good at discriminating between wants and needs and that's what gets so many in trouble.

      As you suggest, keeping track of every penny for a period of time will reveal some unpleasant "secrets" of our decision-making process.

  4. Many people don't save enough for retirement these days because they can't. I agree there are those that waste their money on foolish purchases and selfish gratification and I don't have much sympathy for them either, but there are far, far more who don't make enough to save for retirement, or not enough to make it viable. It's not that people think they won't need as much money, or that they'll get an inheritance or that they're already retired and OK, it's that even with a good job these days wages barely keep up with the cost of living. Neither do benefits, if you have them. Even people who live within their means often barely have enough left over to save for retirement, or to invest beyond the minimum contribution to a 401K. And, as we've seen with recent economic events, even good savers and good investors can be wiped out - how do they start back and build up those savings when they're 50 or 55 years old or older? A medical emergency or catastrophe can send a previously solvent family into bankruptcy, as can developing Alzheimers or another lingering disease in old age.

    If you're a Boomer, your father (women weren't expected to work) was most likely were employed by the same company for most or all of his working life and received a good pension and full healthcare benefits when he retired. Wages were running ahead of the cost of living. Houses, food, and college were affordable for even middle class families. The Baby Boomer generation got off to a good start, women went to work (but also had to pay for child care and other expenses) and some of us found our groove, but for plenty of others the car came off the rails along the way, especially with the advent of 401Ks versus pensions, the decreasing value of the dollar, the increasing cost of healthcare and other economic woes and setbacks. Those in the generations behind us are having to play on a whole different field with a whole different set of rules for retirement. I have college-age kids, and the only advice I can give them is "save as much as you can" because who knows what the economic situation is going to be in 10 years or 20 or 30 or 40? It's my hope that all of my children find work that pays enough to let them save.

    Anyway, I think the points you make are important ones for retirement, but they're not for everyone. There are far too many who play/ed by the rules, and work/ed hard and save/d, but still get/got screwed. Those of us who are enjoying a satisfying retirement and can wonder why people don't save enough come from a very privileged place, IMO.

    1. Very valid comments, Laura. Yes, this post is written for those who have the ability to prepare but don't for some of the reasons noted.

      For those who struggle just to get from paycheck to paycheck, or try to set aside money for a child's college education before retirement planning, none of what I say here applies. Those folks are being left behind by the changes in America's and the world's economy. Dealing with that set of circumstances is a whole other post. For them, retirement in the traditional sense may be unattainable.

      Thanks for making the points you did, Laura.

  5. My wife and I never made a lot of money. Our highest gross income combined never exceeded $87,000. We both had retirement accounts through our jobs. I had a 401K. She had profit sharing. My wife worked for a very prestigious lawfirm. We think sexual predetors only exist in Hollywood? My wife endured 8 years of sexual harassment but could never quit because we needed the money to pay our bills. We had kids to raise and where we lived jobs were few and far between. Finally after 8 years, she was wrongly fired BUT she retained a labor attorney and sued her bosses successfully for both sexual harassment and age discrimination. It took her months to get her retirement funds turned over to her own name. Anyway, my wife never really could work again. She would last 6 months on a job before her anger exploded and she would quit. In other words, my wife hasn't worked since 1999. I've carried the burden. We've tapped into her retirement to pay the bills till it was completely liquidated. I myself suffered health problems and liquidated my 401K over all the years I couldn't work. Other than the equity in our home, we had nothing for any retirement. Thankfully (or unthankfully) my wife's father died and left her $800,000 (of which the government took $200,000 off the top) leaving us with $600,000 to live out the rest of our lives. My wife keeps her head under the radar screen. We live very cheaply and frugally. I can work sporadically. And that's our retirement story.

    1. It is a sad story because of what your wife had to endure and your health issues. It is also a story of perseverance and the human spirit's fight to keep moving on. I appreciate your sharing.

      $600,000 is tight in today's world. I wish you both the best of luck in the years ahead. Is there any Social Security income available to help, even a little bit?

  6. I have written and rewritten. The one thing I can say is by this blog post I find that I am woefully unaware of what 80% of my fellow seniors live on or plan to live on. Thank you for me for helping to open my eyes. I know my generation is abandoning religion and charities. I think the "I did it so you should have too" is going to be a huge problem in the future.
    BTW- the man with $600,000 in the bank is in the top 20% of all savings of seniors. As long as he stays married, he will,most likely, be fine. And the people who can afford "step up" care---they are in the top 10% or higher.

    1. Income inequality in America is serious and growing more so with every passing year. That creates problems like you have identified: a problem relating to someone else's situation that seems so different from our own. Income inequality and falling further behind is becoming particularly acute among seniors.

      Yes, $600,000 is a lot of money on any scale. But, with $250,000 of it likely to be spend on health care and with poor interest rates to stay even or ahead of inflation, that means living for maybe 20 years on less than $20,000 a year for a couple. That is right at the Federal poverty level. It can be done but it is not easy.

  7. Many people live financially precarious lives. When it is difficult to put food on the table each month, saving for the future seems like less of a priority.

    But your question, Bob, pertains more to that segment of the population who have the financial wherewithal to save for retirement, but still fail to do so. Why is that so?

    One reason, I think, is that we tend to look to the past for models about how to behave. For my parents’ generation, many people worked for companies that provided a defined benefit pension plan. People could trust that their company pension was adequate to live on during their latter years.

    Now there are fewer companies that do so, with most having shifted to defined contribution plans. With a defined contribution plan, the responsibility for making investment decisions has shifted from pension plan administrators and fund managers to the individual who holds the plan, yet most people have little knowledge of investing. Nor is there any formal education in financial literacy. It is up to each individual to seek out investment knowledge, and plenty of unscrupulous financial advisors who take advantage of people.

    As the economy has shifted from a primarily agricultural and small business orientation to being driven by multinational corporations for which profit is everything, we as a society have been drawn into constant and excessive consumption as a way of life. All the ads bombard us with the message that buying things is the way to happiness so we spend our money. You practically have to be a contrarian to ignore the pressure to consume, and save and invest instead!

    At the same time, in the quest for bigger profits, large companies have done whatever they can to cut staff because employees are an expense. That means fewer jobs to go around, and less opportunity for people to remain employed in their later years. Whereas previous generations could just keep working in some capacity to supplement their retirement income, that has become a less available option now.

    Fortunately in Canada we have chosen to invest in universal health care and an excellent government pension plan. Although there are still people living in poverty here, I believe that on the whole, the social net makes life less precarious for retired people than it is for many people in the USA.


    1. Now, if your government could just do something about winter!

      The Canadian government seems to have done a good job of accepting certain human needs as part of their responsibility. I would bet the man-hours lost to illness and health problems is lower per capita in Canada than in the U.S.

      Your first point is true. Janette is certainly correct in saying that many retirees have an impossible time saving because of the reasons she and you cite. But, this post isn't directed at them...it is for the people who have the wherewithal to save and invest but choose not to for some of the reasons I noted.

      I will have a post in a few weeks about the increasing inequity in income among seniors and the problems that causes.

  8. Planning for retirement is essential - We are spending $50000 more per year after retiring, even though payroll taxes are completely gone. All other expenses are about the same. We have saved and invested wisely and built up a net worth of $4 million so we are "living the dream" with travel every month. Headed to Venice in November, Morocco in December, and Honolulu in January. We also thought a lot about retirement and the lifestyle we wanted in retirement and worked to achieve that goal.

    1. Congratulations on your good fortune and good planning. That is quite a nest egg. You are obviously enjoying it!