Most People Don't Save For Retirement

A recent Government Accountability Office report estimated that only about 36% of all workers participate in a 401(k) or other retirement plan, and for those with plans the average account balance was less than $23,000. More startling are estimates suggesting that 37% of today’s teen and young adult workers will reach retirement age with absolutely no money saved for retirement.

I did a little more research and found that some experts suggest that many young people know that saving and investing is important, but don’t have any retirement accounts because of a lack of confidence in their knowledge and ability to make good financial decisions and a lack of action. I spoke to several of my friends and co-workers – most of who are in their late 20’s to mid-30’s, and many tell me that they have not saved for retirement either for similar reasons. They say that they know it’s important, but that it’s all too confusing, too overwhelming, and that they’ll figure it out later.

I, myself, did not start saving for retirement until I was in my mid-20s. I guess that places me ahead of the pack, but I completely understand how intimidating it can be to get started. I originally didn’t want to start saving. I thought I could wait until I was in my 40’s or so. I think the thing that spurred me into opening that account was reading an article in a magazine about the power of compounding. The thought of turning a little money into a lot excited me. When I opened my first investment account, I didn’t have a clue what I was doing. I didn’t know what a mutual fund was, I didn’t know who Warren Buffet was, and I didn’t know the difference between a regular IRA and a Roth IRA. Although there was a 1-800 number to call to speak with a financial advisor, the thought of speaking to some stuffy-shirt numbers-and-charts nerd did not sound appealing. For me back then, choosing funds was an eenie-meenie-minie-moe process and all I cared about was which investment would make me the most money. I read a few issues of Kiplinger, and I took a look at historic rates of return and picked the investments which had the highest returns. I figured that I could take the risk of being aggressive and possibly losing it all as I was still young and had time to make it all back up if needed. The company I worked for then did not have a matching contribution and I only managed to invest about $2000, which did well and has more than doubled in less than three years. Now I save more, have diversified my investments, and have incredible – but realistic – plans to have several million dollars saved when I retire.

Going back to today’s young adults who are not saving, on one hand I can appreciate their predicament of not knowing where to start. Knowledge of money matters is not something that many parents share with their children. It’s been said that people are more willing to discuss their sexual habits that they are their income. Additionally, even though there is the vast information resource of the internet available now, and there are many great ‘plain-language’ sites on financial matters (like this one!), there are also many million more stuffy-shirt numbers-and charts sites that can be confusing and leave the reader feeling dumber about money matters. On the other hand, I think about the story of the grasshopper and the ants. I know that Social Security is most likely going to be worthless by the time I’m ready to retire (around 2035), and that if you don’t make the effort to save now, you’ll be out in the cold when winter comes. With the welfare systems in place, these folks will possibly have a little help, but at the cost of taxpayers and those of us who are choosing to be hard-working and responsible. So many young adults prefer to spend their income on frivolities. It’s always amazing to me how co-workers and friends with full-time professional jobs, but with no kids and no mortgage, also never have any money.

To them and you I say, stop spending so much and start saving and investing. If you think you don’t know a whole lot about the process, remember that none of us do, and if we waited until we did, we’d never start. I, myself, learn something new about the market, investment, and economics almost every time I sit down to blog here. If you have a few bucks to spare - and we all should - open a Zecco trading account or enroll in your company’s retirement plan. Invest in one or two mutual funds that you feel comfortable with, and then take it from there. Before long you’ll become a Rich Money Millionaire too, - you’ll see.