The Penalty for Not Saving for Retirement
Financial professionals used to recommend people put away 10% of each paycheck for emergencies and retirement. That recommendation has since gone up to 15%, but according to a recent survey from Bankrate.com, only 16% of Americans are actually putting aside that much or more. As much as 25% of the respondents said they’re saving between 6% and 10% of their income, while 21% said they’re saving less than 5% of their income, and 19% said they aren’t saving anything at all.
All this is despite the fact that unemployment is down and wages are up, but that won’t last forever. At some point, the economy is bound to take a downward turn, at which point employers will start laying off workers. Those who don’t have any savings set aside for such an eventuality will find it hard to pay the bills until they can get another job.
The same goes for retirement. Those who don’t save while they’re working will have a hard time paying the bills for an extended period of time when they’re not bringing home a paycheck. Based on the results of its survey, Bankrate expects half of Americans will have a hard time maintaining their current standard of living once they retire.
Another report from GoBankingRates found similar results, saying 42% of Americans have less than $10,000 saved for retirement and the average American currently has less than $5,000 saved up in any financial account, which is 20%-25% less than the recommended amount. For those aged 55-64 who are getting ready to retire, most only have $120,000 in their retirement savings account, which won’t last long without any source of income.
Most Americans (40%) listed expenses as their top reason for not putting more money in their savings accounts. Another 16% said their job didn’t pay well enough for them to put any money away after having paid all their expenses.
But that begs the question: how much do people need to earn in wages/salary in order to put money away for retirement?
The problem is, the more we make, the more we tend to spend as we hang out with people who make more, and therefore spend more, and we try to keep up. But if saving isn’t a regular part of finances, we could end up like Tom Palome, a retired marketing executive who used to fly first class to Europe on business trips. Now, at 77 years old, he’s getting paid $10/hr at two jobs just to make ends meet.
Prior to retirement, Palome was making six figures, which most Americans consider to be the standard of wealth. But he says he worked so hard to pay off his mortgage and put his kids through college that he failed to put enough money away for his own retirement. Now he says he earns in a week what he used to earn in an hour.
So while you’re working hard to climb the corporate ladder or pay off your debt, don’t forget to feed your savings account. The penalty is ending up right back where you started.