Retirement is the reward you receive after years of working hard at your job. It’s a time when your days are slow and leisurely, and you get to decide how to fill them. Most people dream of having a relaxing retirement, but unfortunately, many Americans have trouble saving up the money they need to retire. According to the Employee Benefit Research Institute’s 2016 Retirement Confidence Survey, only one in five American workers feels confident that they will have the money necessary to have a comfortable retirement. There are many reasons why Americans are feeling less and less confident about their ability to retire. Here are nine of the most common reasons why many Americans may never be able to retire.
1) They’re too Focused on Short-Term Saving Goals
Many Americans get caught up in the moment, and they focus more on short-term saving goals rather than saving for retirement. According to a survey by GoBankingRates, forty percent of Americans say saving for retirement isn’t a priority for them. It can be hard for younger Americans to think so far ahead when there are so many things they want to save for now. It’s much easier to save for something tangible, like a big trip, than it is save for something so far down the line like retirement. If this is something you struggle with, look at your budget and decide where you can cut back a bit. Then, put this money into your retirement savings account. When you do this, you may have a little less to spend on your short-term goals, but it will be worth it once you retire.
2) They Haven’t Made a Retirement Budget
Many Americans don’t realize exactly how much they’ll need during retirement. They may think that since they’re not commuting, and their kids are out of the house, they won’t have to spend as much as they did while they were working. While your expenses may go down when you retire, the only way to know exactly how much you need is to create a retirement budget. In your budget, be sure to put aside money for emergencies that could eat up your savings. You’ll also want to put money away for leisure activities. It’s a good idea to create your budget years before you retire—that way, you’ll know exactly how much you should be putting away. Creating a retirement budget will make it much easier for you to decide how much to save for retirement.
3) They Don’t Take Advantage of Company 401(k) Matching
Another thing many Americans struggle with is taking advantage of company matching on their 401(k). In a survey by Betterment for Business, 23 percent of people polled said they weren’t taking full advantage of their employer’s 401(k) match program. Taking advantage of company matching can help quickly build your retirement nest egg. Talk to your company’s Human Resources department and see how much you have to contribute to receive company matching. This number is different for every company, so it’s important that you discuss your company’s specific plan with HR. You’ll also want to find out if your company matches your contribution dollar for dollar or if they offer 50 cents for each dollar you put in. Once you find out the amount you need to contribute, make sure to put at least that amount in your 401(k) every year.
4) They Don’t Start Saving Early Enough
Many people don’t think about saving for retirement until they’re just a few short years from retirement age. If you start saving earlier, though, you could end up with a nice nest egg. For example, let’s say you begin putting away about $20 a week when you’re 25 in an account with a seven percent annual return rate. If you retired at 65, you’d get back about $215,000. The later you start saving, the harder it is to catch up. However, late is better than never, so even if you are just a few years from retirement, it’s a good idea to start saving now. Many Americans don’t realize how much they can save by simply putting a small amount of money away each week or month.
5) Their Job Doesn’t Offer a Retirement Plan
Not every company offers retirement plans, which can make it a bit trickier to save for retirement. In a survey by GoBankingRates, 19 percent of people polled said that their company doesn’t offer a retirement plan. However, there are still good options available. You can open a traditional IRA or a Roth IRA. There are numerous investment companies that you can go through to open the account, including E-Trade, Vanguard, and Wealthfront. Once you open your account, you can contribute up to $5,500 a year if you’re younger than 50. If you’re 50 or older, you can contribute up to $6,500 a year. Many of these companies also allow you to set up auto-deposits. That way, you won’t have to worry about remembering to contribute each month. Even if your company doesn’t provide retirement plans, it is still possible to start saving for retirement.
6) They’re Withdrawing too Much from Their IRA
Many Americans make the mistake of withdrawing too much money from their IRA each year. Many people want to use their hard-earned money right away, and they may feel that it’s worth losing a bit of their retirement funds. When you withdraw early, you’ll naturally have less to spend when you retire. Plus, on top of that, you’ll also be hit with early withdraw fees. If you withdraw from your Traditional IRA before you’re 59½, you’ll owe income tax on the money you withdrew. You’ll also have to pay a 10 percent early distribution penalty tax. Unless it’s an emergency, it’s best to keep your money in your IRA until you’re at least 59½. That way, you won’t have to deal with the high fees that can come from the early distribution penalty tax.
7) They’re Spending too Much on Their Kids’ College Tuition
It’s very common for Americans to put paying for their kids’ college tuition ahead of saving for retirement. While every parent wants to help their kids pay for college, you don’t want to put your retirement on the line. After all, if you use all your retirement savings to pay for your kids’ tuition, you could end up needing to turn to them for money later in life. Before spending all your savings on tuition, see if you can find any merit-based or need-based scholarships for your kids. There are tons of tools online that will help you find these scholarships. If your kids are already at college, they could also talk to a financial aid advisor to see what options are available to them. Work with your kids, and together, create a plan that allows your kids to pay for school without jeopardizing your retirement.
8) They Wait too Long to Play Catch-Up with Their 401(k)
Until you reach the age of 50, you can contribute up to $18,000 a year to your 401(k). Once you hit 50, though, you can contribute $6,000 more a year in catch-up contributions. If you started saving for retirement late, these catch-up contributions can be hugely beneficial for you. If you contribute $24,000 to your 401(k) from the ages of 50 to 65 and your account has an annual return rate of eight percent, you could save $703,783 by the time you’re 65. Many Americans don’t take advantage of these catch-up contributions, which can cost them thousands of dollars. If you can, try to contribute the maximum amount each year after you turn 50. When you do this, you’ll be able to greatly boost up your nest egg before you retire.
9) They’re Dipping into Their Nest Egg Too Often
Life can be unpredictable, and sometimes, you may end up with expenses you weren’t expecting. To pay for these expenses, you might be tempted to dip into your retirement nest egg. If you do this too often, though, you could end up using most of your nest egg before you retire. To avoid this, try working on building a separate emergency fund that you can use for those unforeseen expenses. It’s a good idea to put windfalls into this account, like tax refunds and year-end bonuses. You could also look through your budget and see if there are places you could trim down your spending. If you have a separate fund that’s specifically for emergencies, you’ll be able to avoid tapping into your 401(k) or your other retirement savings accounts.