Geriatric psychiatrist Charles “Chip” Reynolds III has for decades been one of Pittsburgh’s and the nation’s leading scholars and
You know you should be saving for retirement, right? Here are a few surprising reasons some people think they don’t need to.
They don’t think saving for retirement is a priority
About 40 percent of Americans said saving for retirement simply isn’t a priority for them, found a recent GOBankingRates survey.
“People spend more time planning for their next vacation than for retirement — a huge mistake,” said Scott Bishop, partner and executive vice president of financial planning at STA Wealth Management in Houston.
Putting your vacation — and other savings goals — ahead of your retirement plan can make your golden years difficult. If you wait until the last minute to start saving for retirement, you won’t have time to catch up on retirement savings. As a result, you might be forced to delay your retirement and stay within the workforce until you earn enough money to finally leave it.
If you’ve been ignoring the fact that a low-income lifestyle filled with uncertainty is in your future without retirement savings, now is a great time to start building up that nest egg. If you don’t know how much you actually need for retirement, use an online retirement calculator to estimate how much you should save every year to reach your goals.
They already spent their retirement savings on an emergency
Many Americans don’t have a single penny set aside in a retirement account because they used the funds to take care of emergency expenses or other priorities. In fact, nearly 22 percent of respondents said they have no retirement savings because they used the money to pay for a financial emergency. But tapping into your retirement fund before you retire can have severe consequences.
From medical expenses to house repairs, emergency expenses can put a large dent in your retirement savings account. And it can take months or years to rebuild those savings. Even worse, if you withdraw money from your 401(k) before you’re eligible, that decision can cost you 10 percent or more in early withdrawal penalties — further reducing your savings potential.
That’s why having an emergency fund is so important and needs to be a part of your financial plan in addition to your retirement fund. Aim to have enough savings to cover all your major expenses for at least six to nine months. Having financial reserves can make it easier to set up a separate account for retirement savings when things are more stable.
They don’t have access to a workplace retirement plan
Approximately 19 percent of survey respondents pointed out their employer doesn’t offer them a retirement plan. So they haven’t saved anything.
According to research from The Pew Charitable Trusts, many employers are hesitant to offer retirement plans as part of a benefits package because some believe low-wage workers would struggle to afford regular contributions. And some simply don’t trust state-affiliated savings programs, such as auto-IRAs.
Whether they’re not aware of the importance of retirement savings or simply haven’t explored options to set up a retirement plan on their own, one thing is clear — almost one in five Americans have placed the responsibility of saving for retirement on their employer. But that shouldn’t be you.
If you own your own business, you can follow the IRS’s advice for setting up your own retirement plan for you and your employees. Or, if you’re gainfully employed but don’t have access to an employer-sponsored plan, there are several retirement plans available to you.
They don’t think they need retirement savings
Whether it’s because they expect to earn enough through passive income when they leave the workforce or they’re expecting a trust fund payout, about one in 10 Americans don’t feel the need to set aside a portion of their paycheck for the future, found the survey. Unfortunately, this could put them on the fast track toward financial disaster during retirement.
Once you reach retirement, it’s unlikely your expenses will stay the same. Sure, you might save money on gas because you’re no longer driving to and from work five days a week. And you might save money on clothing because you no longer have to fill your wardrobe with work-appropriate attire.
However, you can expect to spend more money on health care costs. In fact, the average 65-year-old couple that retired in 2016 needs an estimated $260,000 to pay for health care costs. And what about all of the traveling you have planned? You’ll need to save enough money to take those well-deserved trips.
The bottom line: Don’t fool yourself into thinking you can get by without retirement savings. Take steps now to reduce your current expenses and stash away extra money into an account. As Mr. Bishop said, you “need to have a plan, have a budget and stick to the budget.”