Many Americans have let saving for retirement drop on the priority list — and the reasons they use to justify their lack of preparation for the future are not that crazy.
For the second year in a row, GOBankingRates found out that roughly one-third of Americans haven't started building a nest egg. Unfortunately, the harsh reality is that you won't be able to retire with confidence about your future income unless you start planning today.
About 40 percent of Americans said saving for retirement simply isn't a priority for them, found the GOBankingRates survey.
"People spend more time planning for their next vacation than for retirement — a huge mistake," said Scott Bishop, partner and executive vice president of financial planning at STA Wealth Management in Houston, Texas. Putting your vacation — and other savings goals — ahead of your retirement plan can make your golden years difficult.
Ignoring the fact that a low-income lifestyle is in your future won't help you reach a savings goal any faster. When you aren't sure how much you actually need for retirement, use an online retirement calculator to estimate how much you should save every year to reach your goals.
They Assume They Can Catch Up Later
You won't have time to catch up on retirement savings if you wait until the last minute. As a result, you might be forced to delay your retirement and keep working until you earn enough money to finally retire. You're also missing out on the power of compound interest if you avoid making contributions to your retirement fund early.
They Already Used Their Retirement Savings for an Emergency
Many Americans don't have a single penny set aside in a retirement account because they used the funds to take care of emergency expenses or other priorities. In fact, nearly 22 percent of respondents said they have no retirement savings because they used the money to pay for a financial emergency. But tapping into your retirement fund before you retire can have severe consequences.
From medical expenses to house repairs, emergency expenses can put a large dent in your retirement savings account. And it can take months — or years — to rebuild those savings.
They Are Comfortable Withdrawing 401k
Withdrawing money from your 401k before you're eligible is a decision that can cost you 10 percent or more in early withdrawal penalties — further reducing your savings potential for your retirement years. And if you're under 59 1/2 years of age, you'll be subject to a 10 percent federal penalty and possibly a state penalty, depending on where you live.
They Don’t Have Employer-Paid Retirement Plan
Approximately 19 percent of survey respondents pointed out their employer doesn't offer them a retirement plan. So they haven't saved anything.
According to research from The Pew Charitable Trusts, many employers are hesitant to offer retirement plans as part of a benefits package because some believe low-wage workers would struggle to afford regular contributions. And some simply don't trust state-affiliated savings programs, such as auto-IRAs. When you're gainfully employed but don't have access to an employer-sponsored plan, there are several retirement plans available to you.
They Rely on Employer for Retirement Savings
Almost one in five Americans have placed the responsibility of saving for retirement on their employer. But that shouldn't be you. And if you're a business owner, you can follow the IRS's advice for setting up your own retirement plan for you and any employees you might have.
Whether it's because they expect to earn enough through passive income when they leave the workforce or they're expecting a trust fund payout, about one in 10 Americans don't feel the need to set aside a portion of their paycheck for the future, found the survey. Unfortunately, this could put them on the fast track toward financial disaster during retirement.
Once you reach retirement, it's unlikely your expenses will stay the same. Don't fool yourself into thinking you can get by without retirement savings. Take steps now to reduce your current expenses and stash away extra money into an account. As Bishop said, you "need to have a plan, have a budget and stick to the budget."
They Depend on Social Security Checks
Adults 65 and older spend an average of nearly $45,000 a year, according to the Bureau of Labor Statistics. Will your Social Securitychecks be enough to provide that level of income? It's unlikely.
The estimated Social Security benefit for workers retiring at full retirement age in 2018 is $1,404. When you rely only on Social Security in retirement, you'll quickly learn that your check won't go far.
Additionally, it's risky to rely solely on Social Security because the program is susceptible to changes. Retirees need to be prepared for the possibility that their projected benefit will shrink because of major political, social or economic events.
They Rely on Multiple Income Streams
Whether it's from rental income or a passive income stream they built during their working years, some Americans are confident they will be comfortable during their working years. But those funds might not be enough. To be safe, you need to have sources of income that are worth 60 to 90 percent of your current income, according to the STA Wealth Management Retirement Survival Guide.
They’re Still Recovering From 2008
It might be nearly 10 years later, but many people are still recovering from the 2008 financial crisis — and survey participants said this is the reason they haven't saved for retirement.
The crisis in the American housing market left millions of homes in foreclosure. The series of events that ensued made people lose confidence in the markets. Those who felt the effects of the 2008 crisis the most could be less likely to save money for retirement and focus more on taking care of current bills — especially the mortgage and other living expenses.
But creating a retirement plan could actually make you feel secure in the event of another economic crisis during your lifetime. David Freitag, a financial planning consultant with MassMutual, points to a MassMutual study that found a relationship between happiness and planning.
"Retirees who expressed the highest levels of satisfaction were also those who took concrete steps to put both their emotional and financial lives in order at least five years before retirement," he said.
Not earning enough money is another reason some Americans are ignoring their retirement fund, found the GOBankingRates survey.
Reconsider if you think you need to meet a certain salary level to start building up your retirement fund. All it takes is a small contribution each month and a little bit of interest to grow your retirement nest egg. Consider the following example:
Let's say you're 40 years old, and you don't have anything saved for retirement. If you save just $200 a month, earn an annual interest rate of 7 percent and let your savings compound annually, you'll save more than $150,000 by the time you retire at age 65. That extra $150,000 could be the difference between living a dream retirement — or retiring completely broke.
They Aren’t Matching Employer Contributions
When employers offer matching retirement contributions, it's foolish not to take advantage of what is essentially free money. According to a 2017 survey by the Betterment for Business, 23 percent of those surveyed reported they weren't taking full advantage of a 401k match from their employer.
Neglecting to take advantage of this benefit means you could be leaving money on the table as every working year goes by. All you have to do is be diligent about making your maximum annual contributions to your employer follows suit.
According to the Schwab Retirement Plan Services survey, more than one-third of millennials reported they can't save for retirementbecause they're still dealing with the burden of student loan debt. Consolidating loans or exploring refinancing options could be all it would take to free up some money for retirement contributions, however.
They’re Afraid of the Stock Market
Stock market volatility can put your retirement at risk, but the odds of your retirement account disappearing completely by the time you hit retirement are very low. When you invest consistently and conservatively, you will see your retirement account grow in the long term.
Avoiding saving money entirely because of the potential threat of a stock market crash could put you at risk for having zero retirement savings when you reach retirement age.