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Why Americans Don’t Save for Retirement

why americans don't save for retirement

There are many reasons why Americans don’t save for retirement, however it should be a priority. Saving only takes the simplest steps of starting young and being consistent. We list the most common reasons Americans aren’t saving, and how to overcome each of them.

Key Points
  • 32% of Americans haven’t begun saving for retirement.
  • A common reason is lack of passion of investments, like stocks.
  • Self-directed retirement accounts allow you to invest in alternative assets, like real estate.

If you haven’t figured it out, you can’t rely on social security income during retirement. In 2019, the average American received an annual Social Security check of roughly $17,500. As a result, you will need an additional form of income, such as retirement distributions in order to live a comfortable lifestyle. Of course, you can join the gig economy during retirement and take on a part-time job, but that should be a last resort – unless you enjoy the work.

Unsurprisingly, most Americans don’t know how much income they will need during retirement. Surprisingly, 35% of Americans aren’t saving for retirement at all, according to a FinanceBuzz survey released in January 2020.

Why Americans Don’t Save for Retirement

If you currently don’t save for retirement, your reason may be similar, or the same as the ones listed below.

I Don’t Earn Enough Money

1. You don’t earn enough money: The average American under age 65 earns roughly $46,400 each year. With student debt, car insurance, and mortgage, to name a few of the highest bills, that salary can evaporate fast.

Solution: Even if you can’t save the recommended amount, you can stash some of your earnings into a retirement plan. Then sit back and watch your money grow thanks to smart investments and the power of compound interest.

I Have Too Much Debt

2. You’re paying off your debt first: It’s good to make your student loans and credit card debt a fiscal priority. But again, you don’t have to neglect your retirement plan altogether.

Solution: Create a budget that allows you to contribute to both by dividing half of what you put towards your debt into a retirement plan. The longer you wait to save for your Golden Years, the harder it becomes to save what you need to live comfortably.

My Job Doesn’t Offer a 401(k)

3. Your job doesn’t offer a retirement plan: It’s a sad fact that some companies don’t offer their employees the option to participate in a work-sponsored plan. Approximately 21% of workers do not have access to a retirement plan. Without automatic contributions, it becomes more challenging for Americans to save for their future, but not impossible.

Solution: You can setup a Traditional/Roth IRA at a local bank, or financial institution, or you can setup a Self-Directed IRA with a passive custodian. The latter is essentially a Traditional IRA that allows you to make alternative investments (i.e., real estate, cryptocurrency, precious metals) as well as stocks and other traditional investments.

Another alternative is the Solo 401(k) if you generate self-employment income, such as freelance photography.

Invest in Your Passion

Another reason why Americans don’t save for retirement could be due to the lack of investment options. They don’t feel compelled to invest in stocks and bonds because they may not properly understand them. This is when a self-directed retirement plan is the better solution to a Traditional IRA or 401(k).

Self-Directed IRA

The Self-Directed IRA, which has no eligibility requirements is essentially a Traditional IRA that allows IRA holders to invest outside of traditional investments. So, if you don’t feel comfortable investing and stocks and bonds, but feel more comfortable investing in real estate, you can do so with the Self-Directed IRA.

Although you can invest in practically anything with a Self-Directed IRA, you must be mindful of the IRS prohibited transaction rules, which details what you cannot purchase with IRA funds and who/what you cannot make transactions with.

Solo 401(k)

The Solo 401(k) is the most popular and robust retirement plan for self-employed individuals and small business owners with no full-time employees (excluding a spouse and business partner(s)). It has the same rules and requirements as a traditional 401(k), but again, you can make alternative investments as well as traditional. Like the Self-Directed IRA, you must be aware of the IRS prohibited transaction rules.

The Solo 401(k) plan has two eligibility requirements:

  1. The presence of self-employment income
  2. The absence of full-time employees

No Reason NOT to Save for Retirement

In the end, there is no valid reason not to save for retirement. These are all excuses! We have said it many times in the past, but the government incentivizes all of us to save for retirement – they literally make it easy for us – therefore there is no reason not to save. Start today. Let us help you by calling IRA Financial directly at 800-472-0646.

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