"I can't save for retirement, I have to put my kids through school." Maybe the excuse is that you have to save up for a down payment on a house, to take your dream vacation, or to buy a new car. A new study from LIMRA suggests that these excuses are often just that — excuses. If you are not saving for retirement, you probably are not saving adequately for any of those other items, either.
Previous research from the Secure Retirement Institute at LIMRA found that 20% of workers use the excuse of not contributing to employers' defined contribution plans because they are saving toward other goals. However, newer research suggests that retirement saving is not being squeezed out by different savings priorities. Those who save for retirement tend to have an overall savings mindset toward all of their financial goals.
In the latest study of workers aged 20 to 59 with household incomes of at least $50,000, over 70% of respondents reported saving for retirement, whether that savings is tied into their work, independent of their work, or both. The most popular excuses for those not saving for retirement are: building up an emergency fund, saving for vacations or other travel needs, building up funds to cover tax payments, and saving up for educational goals for themselves or other family members. LIMRA analyzed the percentage of respondents saving for those reasons and whether they were retirement savers as well. In all categories, a greater percentage of retirement savers were saving for the other purpose as well.
The greatest discrepancy was in saving for an emergency fund. 39% of respondents saving for retirement were also saving for an emergency fund, compared to 20% who were not also saving for retirement. Smaller discrepancies were found in vacation/travel savings (27% of retirement savers compared to 15% of non-retirement savers), taxes (23% to 14% respectively), and education (22% to 13% respectively).
It is critical to get into the mindset of saving for retirement early in your career, because retirement savings have benefits that are difficult to top with other savings goals — especially when employer matching is involved. Not to take advantage of an employer's matching contribution program is literally to refuse to take free money. The effects of compounding make even small contributions in the early years significant at retirement, and the tax benefits are substantial.
Employer matching is a powerful incentive to retirement saving, according to other LIMRA research. LIMRA found that over 40% of workers only put enough in their defined contribution plans to receive the full company match, and 20% of workers were not contributing to the plan at all. Using a "stretch" matching strategy, where employees receive partial matching at lower levels and must contribute a higher percentage to reach full matching, can promote higher savings levels — but those who are not contributing at all may be fooling themselves into thinking that other savings goals preclude retirement savings. Not so, says LIMRA.
Saving for a down payment on a home or setting up an emergency fund are valuable goals, too. The point is to budget with all of those savings goals in mind. Set up contribution amounts to each of those goals in your budget and reduce expenses so that you can stick to those goals. The little things add up. Think of it as another reason not to super-size your fast food meal — or to not eat fast food at all.
Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.