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Biggest Problem With Retirement Planning

On Friday, the Treasury Department announced that it was closing the myRA program that was started in 2014 to help workers who are not covered by an employer savings program save for retirement. The problem? The program only attracted about 20,000 participants with an average savings balance of about $500. The cost for the program is more than the total amount saved. If you have money in myRA, the money will need to be rolled over to a Roth IRA. See the myRA website for details.

I point out the death knell for this program because it highlights the single biggest problem in retirement planning: people just don’t save enough for retirement. The Employee Benefits Research Institute (EBRI) annual retirement confidence study published in March 2017 points out that only about 60% of workers have saved for retirement. And this will send a chill down the spine of most of us: 47% of the workers in the EBRI study have less than $25,000 in household savings and investments (excluding the value of their house)!

There are many studies that have looked into this issue and the reason that workers don’t save for retirement are varied: not enough income to meet living expenses and save for retirement is the biggest culprit. That leads to the question is the problem not enough income — someone who earns minimum wage has a hard time putting food on the table and roof over their heads let alone save for retirement — or too many other expenses?

The answer is based on an individual’s circumstances and human nature and the bigger challenge is human nature. We are just not wired to delay gratification or make good decisions. I don’t know how else to say it: most of us would rather spend today for something that gives us immediate gratification than save for something that is vague and is 20, 30 or 40 years down the road. Most of us would rather have the bright shiny object today (new iPhone, new boat, vacation, furniture, heck even eating out more) than set aside money for the future. Or it might not even be the bright shiny object disease. It could be competing demands for a child’s education or special needs. Or some other equally important demand.

I don’t know what to do about the lack of retirement savings for too many people either. The best I can do is work with clients to help them do the best they can with what they have saved for retirement. What suggestions do you have to help people save more for retirement? I’d be curious to know if you have ideas.