Are you among the nearly 50% of Americans who have access to a 401(k) program but don't contribute to it? If so, what's keeping you from utilizing this valuable savings tool?
According to a new survey from Schwab Retirement Plan Services, Inc., non-savers are simply having trouble dealing with the combination of daily financial stresses and significant debt.
The survey found that respondents were split evenly between contributors and non-contributors to their 401(k) programs – roughly the same results as a U.S. Census Bureau study reported by Bloomberg in February.
In the Schwab survey, 45% of the non-savers reported being either even or behind on their monthly bills, as compared to 23% of 401(k) savers. Not surprisingly, a similar 2:1 ratio of non-savers said that keeping up with monthly expenses is a significant stress source.
The short-term stressors for non-savers included basic monthly bills (cited by 46% of respondents), paying down credit card debts (42%), dealing with unexpected expenses (34%), and medical bills (33%). It's not that savers don't have the same financial stressors – they just don't affect as many savers as they do non-savers.
People realize the importance of 401(k) plans in saving, since the majority of respondents call them a primary method of saving for retirement. 401(k) plans are not only the largest or only source of retirement funds for 60% of savers, they are also the largest or only source for 53% of non-savers – thanks to previous contributions that non-savers made to a 401(k).
Employer-matching 401(k) programs are harder to find, but if you have one, it's even more important to use it. To ignore an employer match is literally to give away free money.
The Schwab survey shows a disconnect between knowing what to do and having the discipline to do it. A large majority of respondents (89% of savers/79% of non-savers) are relying on themselves or their spouses for retirement income. Just over half of respondents expect to receive any Social Security benefits at all. Even so, it's clear from the study that even savers are having difficulties establishing a sound retirement plan – and one quarter of non-savers don't have any savings or retirement plans at all.
How do you switch from being a non-saver to a saver, with 401(k) programs or otherwise? You have to decide that saving for retirement will be a priority from now on. Start with a revised budget that allows you to put away at least a bit for retirement.
Assume your 401(k) is just another monthly bill to pay, and rebalance your budget as if your income had dropped by the 401(k) amount. Take a detailed look at where all your money is going. What if you stopped getting a latte or doughnut every morning on the way to work? Do you really need the level of cable/satellite TV that you have? Can you find a better cell phone bill and data plan?
Saving is a mindset, and true savers approach all aspects of life this way. Am I getting value for my money? If not, make a change.
Once you start to cut expenses and see the benefits, momentum kicks in. You'll save more cash to apply to debt and/or savings and less stress in the process. Put some away for savings, but focus on reducing high-interest credit card debt first.
Regardless of how you choose to invest for retirement, it's important to start running a surplus of cash so you actually have something to invest. Whether you decide to invest your cash in a 401(k), IRA, traditional savings account, or collectible bobbleheads is up to you. We strongly discourage that last choice ... but it's a free country.
Let the free Retirement Planner by MoneyTips help you calculate when you can retire without jeopardizing your lifestyle.