How to Close This Retirement Disconnect

When it comes to saving for retirement, I know you know what you should be doing. And I also know that sometimes you can fall short of what you know is best. 

A recent report from JP Morgan put some numbers to that disconnect: The vast majority of savers say they know they should contribute at least 10% of their salary to their retirement accounts. But only 35% of those savers say they are following through on what they know they should be doing. 

I think there are long-term and short-term decisions you can make that will help you find a way to contribute more. 

Let’s start with the biggest reason people say they can’t save more: they are spending a lot of money paying off debts.  

If that’s what is holding you back, I think you might benefit from committing to the practice of need versus want. You want to send your kid to the college of their dreams, but what you (and they) need is to choose a school that will not require you to take on debt that in turn keeps you from saving more for retirement. And stop funding a 529 College Savings Plan if it’s preventing you from saving enough for retirement. 

And for those of you considering grad school, please be very careful here. Borrowing more than you can expect to earn after graduating (including any undergrad debt) is a big red light that you are borrowing too much. Grad school can be a need, but only a program that will not leave you saddled with crushing debt that makes it impossible to get on course with retirement planning the minute you get back out in the work world.  

Another way debt can get in the way, is how much you choose to spend on a car. You may need a car, but the car you want is likely going to cost way too much. The average monthly loan for a new car is now well above $500. No wonder people say they can’t afford to save more for retirement. The best car is the affordable car that does not crowd out your ability to get on track—and stay on track—saving for retirement. 

And let’s talk about a home. You want to live on a certain street in a certain neighborhood. But maybe what you need for financial security, is the less expensive home that is outside your dream location.  

I can’t stress enough how the “need v. want” test can help you avoid over-borrowing.  

Another reason people cited for not saving more for retirement was the fact that they are “not earning enough.” I have two thoughts about this. First, if you are not being paid what you are worth, it’s on you to fix that. Have you made a fact-based presentation of why you deserve a raise? And if you are repeatedly turned down, are you actively exploring a new job that will pay you what you know you are worth? I say that with complete understanding for how frustrating it is to not be valued where you are, and where you have given so much. But after a point you have to stand tall and make a change. If you are not getting paid what you know the market will pay, then move on. 

And in the meantime, I am going to challenge you to really think hard about living below your means. When you spend less, you need to earn less, and that will give you the flexibility to save more.  

If you are serious about wanting to save more for retirement that might be the motivation to be more conscious about your spending. You may find you can cut out certain spending. But what’s likely even more attainable is scaling back spending-- a little less on clothing, a little less on evenings out. Trimming spending across multiple items will add up.