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Half of All Americans Are Not Saving for Retirement

In April, LIMRA, a think-tank for the financial industry, completed a survey intended to focus on the savings and investment preferences of those living and working in the United States. After receiving responses from 2,697 Americans, a representative sample of the country, LIMRA was able to determine that 49 percent of the country is not saving for retirement. Additionally, more than half of Americans between the ages of 18 and 34, at 56 percent, are not saving for retirement.

Saving for retirement — and receiving the associated tax benefits through typical investment types like 401(k) plans and IRAs — requires a public trust in the financial industry. On one side, financial planners, investment salespeople and brokers, columnists, and bloggers are encouraging the use of financial products that, through both apparent and hidden fees, enriches the industry, while on the other side, investment firms are the beneficiaries of massive taxpayer bailouts and frequently in the news for using taxpayer money for paying their executives bonuses that defy the laws of gravity.

Wall StreetIt may be true that the reason many Americans do not save for retirement is ignorance. There are typical excuses for not saving for retirement, such as the lack of good, seemingly trustworthy information about the options that are available, the lack of knowledge about the benefits of investing in 401(k) plans and IRAs, or the belief that during tight personal economic times, not a cent is available to save for the future. After the recession, however, many people just see the financial industry as unworthy of trust. Organizations like LIMRA, working for the industry and promoting financial products, are unlikely to bring this attitude to the public attention.

The industry is more interested in shaming people unwilling to get on the boats rather than analyzing the leadership capabilities and trustworthiness of the boats’ captains.

I’m saving for retirement with 401(k) plans and IRAs. When possible, I choose plans that have low fees, but the choice is not always up to me. Employees may be able to choose from a selection of investments inside their 401(k) plan, employees can’t choose their company’s 401(k) administrator and broker without a coordinated effort among a large portion of employees. That would be nearly impossible in a large company. Unions are intended to solve some of these issues, but it can often reach the point where being a member of a large union is much like working for a large employer. The power of any individual is limited.

The 401(k) is ingenious for the financial industry, particularly now that it’s automatic. In a perfect world, every single employee is enrolled in a 401(k) plan on their first day on their first job. The investments may not perform well over time, but that’s not particularly relevant for the financial industry. As long as every American is investing a portion of their paycheck every week, two weeks, month, or other period, 401(k) administrators and brokers will continue to thrive. The employee probably benefits when retirement approaches, but that is by no means guaranteed. All you need to do is look at the portion of Americans who planned to retire in recent years but saw their nest eggs trampled on during the recession.

Investors bear the responsibility for changing their risk profile as they near their planned retirement, but there is a mixed message. The financial industry says you need to stay invested in stocks (highly volatile, highly risky) as you approach retirement because most people need their funds to last several decades throughout retirement while at the same time warning people to risk only what they can afford to lose. When people receive conflicting information, making decisions becomes more difficult. And when the conflicting information is coming from the same source — that is, the financial industry — the default reaction is the lack of trust.

Does the financial industry wants to do American citizens a favor by providing options for saving for retirement? No. The financial industry wants its companies to not only stay in business but to profit as much as possible. And to that end, it sells products — investment opportunities — designed to enrich the companies and their shareholders. There’s nothing wrong with this, because consumers will only buy products they need or desire enough. Companies will sell towards that need. And when only half of Americans have discovered retirement savings vehicles like 401(k) plans and IRAs, the industry will resign itself to doing a better job in explaining to the country why their products are needs, not wants.

Saving for retirement is important. For most people, stocks are the only investment type that can grow wealth quickly enough to provide the dream retirement so impressed upon Americans through media. It’s risky, as recent would-be retirees have seen. Thanks to the cognitive dissonance resulting in the understanding that the promotion of retirement is a result of the financial industry trying to increase profits on a large scale rather than corporate concern for the well-being of a nation and the knowledge that Americans must do something drastic to save money in order to fulfill the dream of quitting work, some Americans choose to invest while others would sooner give away their firstborn rather than drink the financial industry’s Kool-Aid.

LIMRA may be right — that most people who do not invest for retirement with 401(k) plans and IRAs have not done so because the industry’s message hasn’t successfully penetrated their consciousness. That may be due in part to a lack of education, but for others, it’s a lack of faith and trust in the industry.

Photo: zoonabar

Published or updated May 14, 2012.

About the author

Luke Landes is the founder of shizennougyou. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 20 comments… read them below or add one }

avatar 1 Anonymous

That the financial industry’s high-powered marketing machine hasn’t seduced every single American doesn’t reveal lack of education. Many have heard the message, and rejected it.

Wall Street’s marketing strategy and business model is brilliant really: Disguise marketing messages as “research” and “education,” position equity investing as the only way possible to avoid a senior years cat food diet, then extract massive fees from the sheep regardless of performance.

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avatar 2 Anonymous

Ok so what other options are there?

Pensions – Most underfunded and puts the ownership on the business/municipality to invest the assets properly
Real Estate – Renting isn’t a bad idea, but if people can’t even manage a 401(k) asset allocation they certainly will fail at being a landlord.
Traditional Broker Account – Not tax differed but much more flexible. The issue it’s with these bad “marketing machines” again
Under the pillow or gold – Earns no interest or growth and will be lost to inflation

Like capitalism, many hate 401(k). 401(k) (and all it’s imperfections) is still the best thing we have. So until someone comes up better idea in a financial innovation for retirement (Kurt you are more than welcome) stop complaining about it.

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avatar 3 Luke Landes

Coming up with a replacement for the financial industry in one blog comment or blog article is a bit of a tall order. People can certainly comment about any issue they’re not happy about, even if they have no immediate solution to what ails them. Enough people complain, and thought leaders emerge who come up with solutions to society’s big questions. Capitalism itself is a result of that process.

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avatar 4 Anonymous

I agree one article/comment won’t solve the issue. BUT mentioning them as “marketing machines” suggests to me not using financial institutions at all and creating another government solution.

For investing it really comes down to two possible solutions to retirement: Either:
– Government
– Private Corporations

I prefer private corporations with proper government rule of law. A government only solution (ie Social Security) might work for some, BUT I certainly do not want to be forced into an option like this.

Honestly I would prefer to not pay social security and let me do my own investing of my own money. I am not nieve to think this should be for everyone, but I should have the option to opt out. Unfortunately with government programs (a la Obamacare) you rarely have an opt out option.

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avatar 5 Ceecee

Ugh, what a topic. You can take the safe route, a self-directed IRA invested in insured CD’s—-but look what they are paying now….next to nothing. Still, I hate to see people lose the tax benefits, especially those of a Roth IRA. Late in life, that income that is not taxed could be very beneficial. After all, who knows how awful the tax rates will be in the future?

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avatar 6 Anonymous

“All you need to do is look at the portion of Americans who planned to retire in recent years but saw their nest eggs trampled on during the recession.” – I think it’s worse to note that investors made it worse by selling in 2008 and not buying again until maybe this year. A lot of those losses would have been erased from March ’09 until around January of this year.

So, yea, perhaps lack of knowledge there too? Buying after it has risen and selling after it has fallen is no way to approach the stock market…

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avatar 7 Luke Landes

The timing of buying and selling is irrelevant for many would-be retirees. They bought over the past few decades, periodically, with each paycheck, with the idea that stock market returns would increase their nest egg over time. Many didn’t necessarily sell during the recession. They extended their working years. They might have continued buying with ever paycheck, others might have put their investing on hold. 401(k) balances were back to their highest level in 2011, so perhaps those who hung on and didn’t sell were fine. Buying and selling, in 401(k)s, is generally not a function of trying to time the market. You buy when you feel you have the funds available and you sell when you need the cash. That behavior may be different with IRAs, but not much. It’s quite different than investing behavior for people who have disposable income, trading day in and day out, trying to time the market.

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avatar 8 Anonymous

Timing may be irrelevant for some would-be retirees, but not all. There are people who day trade with their 401(k)’s and IRA’s. The average retail investor lags the stock market, so you can’t plausibly claim that irresponsible investment decisions are not part of the equation. It’s not as if individual investors are only influenced by things beyond their control. They chase returns, and it costs them money.

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avatar 9 wylerassociate

I’m saving for retirement with 401k, Roth IRA and investing in the stock market. My biggest regret is not investing about 4 years ago. I understand americans who are out of work that aren’t saving for retirement but those who are working and aren’t saving then shame on them.

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avatar 10 Anonymous

I am investing in my work’s 401k plan and have money put away in a Roth IRA. At age 26, I find that my peers just do not know enough about these plans to put money in them. Also, people my age are in spending mode and do not allow themselves any extra money for investing. your 20’s is usually a weird age where you don’t quite make “enough” money, but you also want to “live it up” because it’s perceived that you won’t have fun when your older, married with kids. Though the financial industry is in the business of making money off of investing other’s money, I still think that the message isn’t loud enough or clear enough for young people to be motivated to put anything away. Fear is a great motivator when it comes to investing (which is why people start investing in their 40’s and 50’s if they haven’t previously) and maybe we need some real-life case studies of people who didn’t save for retirement…

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avatar 11 Anonymous

One thing to keep in mind about this is that only about 2/3 of workers have access to retirement plans at work. Its easier / simpler for people to contribute via work so for the 1/3 of people without any work based retirement plans you’d expect a lower contribution rate. Among people who do have plans at work the participation rate is closer to 75%.

* Ignorance in retirement and/or assumption that social security will meet their needs.
* Lack of money. With 16% poverty rate its pretty easy to see why a lot of people don’t save fore retirement… they don’t have money to spare.
* Temporary employees who won’t vest in benefits.
* People already setup for retirement via pensions or existing retirement savings. 20% of the workforce still has a traditional pension.

I’d assume that #1/#2 are the biggest reasons people don’t contribute.

The access and participation rates in work plans are directly proportional to wages.
For people in the lowest 10% of wages : 28% have coverage and 35% of them participate so only 10% total in that group are saving via work.
For the TOP 10% of wages 87% of people have retirement plans and 90% of those people use them so 79% of those people are saving via work.

Small business also does a poor job of helping workers save for retirement.
For companies with 1-49 workers : just 45% have access and 70% participate for 32% total saving rate.
Large companies >500 or more workers : 86% access and 88% participate for 76% total

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avatar 12 Anonymous

Oops, sorry thats a little poorly worded. Those bullets in the middle were supposed to be the various reasons I think people fail to save for retirement.

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avatar 13 Anonymous

I think this is a big issue because so many people are going to realize their savings are well short of where they need them to be. They could find themselves spending their final years in poverty or relying on government assistance.

Education definitely plays a role as many people have never even heard of a 401k or a Roth IRA and they’ve never even tried to figure out how much they need to save for retirement. Of course when you’re struggling to put food on the table you’re not going to spend your time worrying about retirement and that’s a whole other issue.

Lack of trust in the financial industry is understandable. They don’t really want you to be educated and understand what you’re doing…they just want you to hand them your money and hit you with as many fees and commissions as possible. It can be hard to find reliable information that isn’t just marketing in disguise, and that frustration just leads to inaction. But if your retirement plan consists of buying lottery tickets and crossing your fingers you’re in trouble.

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avatar 14 Anonymous

I think the prime reason people put off saving for retirement is it seems far away and it is difficult to give up something today for that far away date.

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avatar 15 Anonymous

Those who are not saving today will suffer one day. This might be due to un-awareness or they may not be investing somewhere due to fear of loss, but whatever the reason is, main thing is that they should start saving, instead of spending money in buying useless items or scrap they must save for their own better tomorrow.

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avatar 16 Anonymous

I think ignorance and lack of faith in the industry covers it pretty well. Although, I’ve also read that that number of 1/2 of Americans not saving for retirement is incorrect, and that a lot more do than that. Now I’m torn about hte truth. Although I gues it doesn’t really matter so long as I save for retirement. :)

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avatar 17 Luke Landes

Well you certainly can’t control what other people do… only your own investment choices. As far as statistics go, I imagine there are dozens of ways to measure who is saving for retirement. One study may not agree with another study… and this particular information was released by the financial industry (or a group working on its behalf). A more independently-backed study might come to a different conclusion. The idea that numbers reflect an absolute truth is a myth that’s hard to get past.

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avatar 18 Anonymous

The 401k system is imperfect – no question there. But Warren Buffett suggested a good way around that: select a fund that simply mimics the S&P500. Those index funds are cheap and (according to him) outperform most other funds. I was fortunate that our company had that option. It didn’t do as well as stocks I invested in personally, but it worked in that it forced me into the discipline of saving. And I’m glad I did.

My observation from fellow employees as to why they didn’t save is a lot simpler than most people suggest: they simply want to spend the money now. Even if the system was wonderful, spending the bird in the hand is still a powerful draw to today’s workers. Just an observation…

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avatar 19 qixx

The 50% that are not saving for retirement are making the right choice. Just follow along …

About 50% or Americans also pay zero federal income tax. So people who the government say make so little that they don’t have the funds to pay income tax are also not saving for retirement. That is not so surprising.

This is not a problem with poor planning or people not looking down the road far enough. These 50% or Americans are choosing to eat today instead of save for retirement. I’d say they are making the better choice. Me i’d rather have a roof, warm bed, clothes, and food than a retirement plan.

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avatar 20 Anonymous

Yet well over 50% of Americans own cars, bazillion channel tv’s, various iCrap, eat out several times a month, shop at malls insteadd of Walmart and thrift stores, etc. Explain that one.

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