7 Obstacles to Saving for Retirement

Emily Brandon

Only about half of Americans are putting aside money for the future. A recent HSBC survey found that just under half (49 percent) of Americans are regular savers. And a new Consumer Federation of America (CFA) and Employee Benefit and Research Institute (EBRI) survey concluded that only 54 percent of Americans have a savings plan with specific goals, and just 42 percent are saving enough for a retirement with a desirable standard of living. Here's why it's so difficult for half of the population to save for retirement, and how to conquer these problems:

Rising costs. Among those who have never saved for retirement, over half (56 percent) are being held back by the day-to-day cost of living, HSBC found. It's very difficult to save for retirement on a low income, but if you manage to do it, the federal government will give you a match through the tax code. People who earn less than $29,500 (singles), $44,250 (heads of household), and $59,000 (couples) in 2013 and save in a 401(k) or IRA are eligible for the saver's credit, which can be worth up to $1,000 for individuals and $2,000 for couples. And as your salary grows or you get raises or bonuses, it's important to put a portion of that cash aside for retirement. Just over a third (35 percent) of Americans say they save a portion of financial windfalls including tax refunds, gifts, or bonuses, CFA found.

No retirement plan at work. Only about half (49 percent) of employed Americans work for a company or union that sponsors a retirement plan, and just 40 percent participate, according to a recent EBRI analysis of Census Bureau data. "Those who have workplace programs and are participating, they are doing significantly better than those who are not," says Dallas Salisbury, president and CEO of the EBRI. "Take advantage of an automatic payroll deduction at work to make saving an even quicker reality." If you don't have a retirement plan at work, you probably aren't getting any employer help with your retirement savings. That means you will need to take the initiative to set up an IRA or taxable investment account and make regular contributions. Some 41 percent of Americans say they save automatically outside of work through regular preauthorized transfers from checking accounts to savings accounts or investments.

Lingering impact of the recession. Just over a third (34 percent) of Americans say the economic downturn has significantly hindered their ability to save for retirement, according to the HSBC survey. Specific events that limited the ability to save include becoming unemployed (28 percent) or a pay cut or other drop in earnings (20 percent). Although the economy as a whole has largely recovered from the recession, many individuals are still behind. EBRI found that many people are saving less than they were a year ago (38 percent), compared to the 30 percent of workers who are saving more than last year. "Many households, particularly those with low and moderate incomes, have not started to recover substantially," says Stephen Brobeck, executive director of the CFA. "Millions of families have not been able to make progress, especially in their savings."

A traumatic life event. Sometimes people encounter an unfortunate life event and stop retirement account contributions to cope with sudden costs. Some individuals say they stopped saving for retirement to help cope with an illness or accident that prevented them (or a spouse) from working (13 percent), to pay for a dependent (13 percent), or upon stopping work to look after someone (6 percent), HSBC found. And 27 percent of those surveyed would dip into their existing retirement savings to deal with a crisis. "Retirement savings are vulnerable to being raided to deal with serious financial hardship resulting from unforeseen life events," says Andy Ireland, executive vice president of retail banking and wealth management at HSBC Bank USA. It's important to build an emergency fund so you won't need to dip into your retirement account, and pay the resulting taxes and penalties, to cover unexpected expenses. About two thirds (65 percent) of Americans say they have sufficient emergency savings to pay for sudden expenses like a car repair or doctor visit, the CFA found.

Debt. Too much debt makes it especially difficult to save for retirement. Just over a quarter (26 percent) of Americans say getting into debt has reduced their ability to save for retirement, and only 28 percent of Americans describe themselves as consumer-debt free, EBRI found. Paying off debt frees up cash to use for other things, including saving. And paying off mortgage debt by retirement can completely eliminate one of your biggest monthly bills.

Educations costs. Higher education expenses often compete with retirement savings, especially when there isn't enough money coming in to cover both costs. Many people say they stopped saving for retirement to pay for their own (16 percent) or a child's (15 percent) education costs, HSBC found. And 5 percent of parents withdrew an average of $6,542 from their retirement accounts in 2012 to pay for college costs, according to a Sallie Mae and Ipsos survey of 800 parents of 18- to 24-year-old undergraduate students. Another 2 percent of parents took a retirement account loan averaging $4,357. While it's a worthy goal to help your children pay for college, it's risky to jeopardize your own retirement security to do so. "While some events might be unexpected, other major life events that disrupt retirement plans like starting a family and expensing a child's education can be better managed if properly planned for," says Ireland.

Retirement is far away. It's difficult to begin saving for retirement at your first job when you have so many more pressing needs, perhaps including paying down your student loan debt or saving for a down payment on a first home. However, the money you save in your 20s and 30s has the longest period of time to grow. Any money you tuck away at your first job and don't touch until retirement will compound and grow your net worth without you having to expend any additional effort. Some recent research suggests that picturing yourself in old age can help motivate you to save for retirement.

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