Are You Gambling With Your Retirement?

I recently came across an interesting article from Richard Eisenberg at Forbes entitled The Dicey Retirement Gamble Americans Are Making. In it, Eisenberg pieces apart the 2016 Retirement Confidence Survey from the Employee Benefit Research Institute. This study takes a look at the confidence people feel about where they’re headed in terms of retirement and compares that to their actual financial state.

Let’s be clear: The gamble Eisenberg is talking about is the gamble that you’ll somehow be able to make things work when you reach retirement age if you’re not saving for retirement. As the survey shows, that’s a gamble that a lot of Americans are taking.

Eisenberg is not impressed: “Unfortunately, from my reading of the survey, workers are far more confident about their prospects for aging into retirement than they have a right to be.”

First of all, Eisenberg notes that the study indicates a high level of retirement confidence among Americans: “The percentage of workers who are “very confident” about having enough money for a comfortable retirement has ratcheted up from 13% in 2013 to 21% this year, essentially plateauing from 22% in 2015, after sinking to record lows between 2009 and 2013. Similarly, those saying they’re “somewhat confident” have risen to 42% from 36% in 2015. Altogether, 63% are now confident they’ll have enough for a comfortable retirement.”

However, that confidence doesn’t reflect reality: “In this year’s EBRI survey, roughly four in 10 workers — 42% — said they and their spouses have less than $10,000 in savings and investments; 27% of those age 55+ (in fairness, however, another 26% have saved $100,000 or more). Of those without retirement plans, a stunning 83% have saved under $10,000, which makes a pretty strong case for requiring all employers to offer all employees retirement plans, either through a federal or state program.”

What will they do about this? Not much, unfortunately. “Thirty-nine percent say they need to save at least a fifth of their income to retire comfortably. And how do the workers who say they’re putting away less than necessary plan to right their retirement ship? Well, 20% say they’ll need to save more later; 15% say they’ll need to work in retirement; 14% say they’ll need to retire later, and 13% ‘don’t know what the impact will be.'”

What about the plan of working in retirement? “Roughly two-thirds of workers (67%) said they expect to work for pay after they retire. But just 27% of retirees actually do. Similarly, 37% of workers said they expect to retire after 65 (up from 11% in 1991), but only 15% of retirees actually did.”

Here’s what I took away from all of this.

First, there’s a pretty healthy slice of Americans that believe they’ll be fine in retirement but haven’t saved a dime yet. Unfortunately for those people, they almost assuredly won’t be fine in retirement. If you want to be in good retirement shape, you should start saving the first second that it’s possible to save, because the more you put it off, the harder it’s going to get.

Second, if you don’t have a retirement plan at work, it’s likely you haven’t saved anything at all. Four out of five Americans who do not have a workplace retirement program have saved less than $10,000 for retirement. That’s a recipe for disaster, right there. The thing is, it’s not even that hard to save for retirement on your own, as almost every investment house offers a Roth IRA, which makes retirement savings quite easy.

Finally, many people plan to work in retirement, but most do not. If you’re banking on working in retirement to supplement your lack of retirement savings, the truth is that it’s very likely something will keep you from working in retirement. Maybe it’s your health. Maybe it’s caring for someone else. Maybe it’s something different entirely.

That picture does indeed add up to a gamble. Many Americans are simply gambling that some kind of financial miracle will occur to make retirement easy for them, whether they think about it that way or not. Unfortunately, that financial miracle is pretty unlikely to happen.

This seems like a bleak picture, but it’s a bleak picture with an incredibly easy solution. Just start saving for retirement now. That’s really all you have to do.

What this study indicates – and what I’ve heard from many other people – is that the one thing that holds them back from saving for retirement is the concern that retirement savings is going to eat into a budget that’s already very tight. If you’re already struggling to make ends meet – and depending on how you look at it, as many as 76% of Americans are struggling – putting aside even a sliver of your money each week or each month can seem like a very challenging and very risky proposition.

It’s not.

For starters, when you start saving for a big goal like retirement and have that money taken out automatically right off the bat, you really don’t miss that money. Instead, you just stop spending money on less important things, but you do it in a way that you barely even consciously notice. Maybe you have a couple cheaper meals here and there, but you forget about it five minutes later. Maybe you skip out on a treat from a convenience store, but it’s forgotten within 10 minutes.

For another, not having that money in place guarantees that you’ll have a bunch of hard decisions to make when you approach retirement age. The fact of the matter is that Social Security alone creates a very tight living situation, one where you’ll likely not have enough money to go around. Take a look at your most recent Social Security statement – could you live a pleasant life on that amount?

The way I look at retirement savings is simple. I’m putting aside a little bit of my money right now to pay for my life when I’m old and no longer able to work. Like it or not, I’m going to grow old. So are you. There’s going to come a point where work becomes a pretty miserable proposition, and when that time comes, every single dime you put aside is going to be a godsend.

But what if you can’t possibly afford to save for retirement? What if your financial state is so precarious that you can’t handle saving $6 out of every $100 in your paycheck?

If that describes your situation, you’re already in a tremendously risky state. You’re walking on the high wire, hoping that nothing comes along and causes everything to fall apart. If your financial state is that tight, something as simple as an illness or a job loss or even a car problem can cause everything to come crashing down.

If you’re in that kind of high wire situation, your primary focus shouldn’t be on retirement. It should be on getting your day-to-day finances in good enough shape so that there isn’t an ever-present threat of losing everything if one or two little things go wrong.

Once you step off of that day-to-day high wire, it suddenly begins to look really easy to save a little bit for retirement. It no longer seems like a dicey proposition at all.

So, how do you step off of that high wire? How do you undo this “gamble”?

Again, it’s easy. The immediate solution is to cut your spending in some way. Spend some time figuring out where every dollar of your income goes, then figure out what you can cut out of that. Maybe you can start taking the bus to work to save on gas and parking. Maybe you can cut your home energy bills by turning off the A/C and/or furnace and opening the windows.

Then, don’t spend that saved money immediately; instead, channel it into other things that will improve your finances, like installing LED light bulbs (which will cut down on your electric bill) and paying off your credit cards (which will cut down on the finance charges and interest that you pay). As you can see, it all starts to snowball.

At the same time, do what you can to earn more. Maybe this means trying to get more hours at work, or taking on a second job. Maybe it means trying to start a side gig of some kind, such as mowing lawns or creating YouTube videos. If you can turn your spare time into something that’s cash-positive, then you’re going to be headed in the right direction.

If you do these two things together, you’ll slowly find yourself stepping down from the high wire. You’ll slowly find yourself with more breathing room. And you’ll slowly find yourself with the means to start saving for retirement.

The only gamble when it comes to retirement savings is not saving at all. Don’t take that risk.

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Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.