The Simple Reason America Is Failing at Saving for Retirement
Our mission at Investment U is to examine and explain every aspect of wealth creation.
Each day we look at stocks, bonds, currencies, metals or commodities. We discuss interest rates, inflation, economic growth, business developments and government policies. We highlight asset allocation, security selection, investment costs and taxes.
But, in my view, we spend too little time discussing the first and most important step in the investment process - saving - and the indispensable habit that makes that possible: delayed gratification.
According to the 2017 Retirement Confidence Survey from the Employee Benefit Research Institute (EBRI), Americans are woefully unprepared for retirement.
It’s not that we don’t know what we’ll do with all that free time. It’s that many of us never absorbed the lesson of “The Ant and the Grasshopper.”
This is likely to have dire consequences.
The average retired worker receives just $1,360 a month from Social Security. (If you include spousal benefits, that climbs to $2,069.)
According to EBRI, almost a quarter of Americans (24%) have saved less than $1,000 for retirement. And nearly half (47%) have saved less than $25,000.
As I pointed out in a column a couple of years ago, anyone who invested $190 a month for 40 years - and earned nothing more than the stock market’s average annual return for the past 200 years (10%) - would have accumulated a sum of more than $1 million.
(If $190 a month would have been too ambitious, even $47.50 a month would have turned into more than a quarter of a million bucks.)
Yet the majority of us did nothing of the sort.
Some were too poor. (Let’s be frank. You can’t save what you don’t have.) Others believed the government or their employer would take care of their retirement. (Hoo-boy.) Still others were simply uninformed about the power of equity ownership and compounding. (A big reason we should teach basic financial literacy in high school.)
However, many of us were not indigent, ignorant or wishful thinkers. We couldn’t invest because we didn’t save. And we didn’t save because we chose immediate consumption over delayed gratification.
Unfortunately, delayed consumption is the essence of saving and investing. No capital = no investment benefits from capitalism.
No doubt some find these words heartless or judgmental. After all, who am I to suggest personal responsibility and thrift? Haven’t I listened to Bernie Sanders? The economy is rigged. The system is set up to benefit the rich. The business model of Wall Street is fraud. The little guy doesn’t have a chance.
I have been an avid saver since I was an indigent young man in my 20s. I worked a crummy job. I drove a beater car. I shared an apartment with friends. I had no health insurance. I had no employer-sponsored retirement plan.
But I saved. (Frankly, I was terrified of what might happen if I didn’t.)
I did have a credit card, but I paid it off every month. I decided early on that if anybody was going to earn 18% interest it was going to be me - not the bank.
Yet many of my contemporaries found this behavior quaint or unrealistic, if not entirely misguided.
Millions of Americans believe that government should deliver the material happiness they deserve, sparing them the trouble and discomfort of striving.
It won’t happen. There is no Social Security lockbox. Immediate benefits are paid out of current contributions. In the future, there will not be enough workers to cover the burgeoning entitlement rolls.
If you want to ensure a comfortable retirement, you need to save as much as you can, for as long as you can, starting as soon as you can.
And that begins with delayed gratification.
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