Financial Expert Shares 10 Ways Americans Are Hurting Their Own Retirement Savings

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Retirement saving has taken a back seat for many Americans recently, and the reasons why may be unsurprising. A combination of inflation, soaring interest rates and the resumption of student loans is making it difficult to set money aside. This scenario has been translating into a dwindling of confidence in retirement preparedness.

A recent BlackRock survey found that only 56% of Americans feel on track concerning their retirement savings, down from 63% in 2022 and 68% in 2021.

“If saving for retirement seems scary, seeking the help of a financial advisor can make the nightmare of putting money away for the future a lot less terrifying,” said Dr. Barbara O’Neill, RetireGuide contributor and owner / CEO of Money Talk. “Seeking financial guidance can help you assess your finances, project how much you need to save and formulate a plan for a successful retirement.”

O’Neill detailed a number of choices that keep people from saving.

1. Overspending

O’Neill said this situation occurs when people “live above their means” and spend all of their available income on living expenses and non-essential discretionary expenses. In turn, this leaves little or no money left for retirement.

2. Sequential goal-setting mindset

“This means a belief that you have to work on one financial goal at a time in a series of steps,” said O’Neill. For instance, this can happen if you solely focus on saving for emergencies, and/or repaying student loans before retirement savings.

One big disadvantage of this strategy: Compound interest is not retroactive if it takes a decade — or more — to get around to starting an IRA or 401(k).

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“Sequential goal-setting also delays savings because people don’t get an early start and forgo compound interest,” she said.

3. Failure to budget

Ideally, O’Neill said, retirement savings should be considered a “fixed expense” and done automatically through payroll deduction or automatic deposits.

“Without preparation of a budget, and the future-mindedness that accompanies it, money is often not allocated for savings,” she said.

4. Outstanding debt

With soaring rates, debt can quickly increase, compounding the issue.

High monthly payments for debt that was incurred as a result of past spending decisions makes it difficult to “find” money to save, per O’Neill.

“For example, a 20% consumer debt-to-income ratio means that $1 of every $5 of ‘new money’ is already spoken for as a result of past spending decisions,” she added.

5. Lack of planning

Planning and budgeting are key to savings. Yet, some people have no idea how much money they need because they haven’t taken the time to do a retirement savings calculation, O’Neill explained. In turn, lack of planning results in haphazard savings without a clearly defined goal to save for.

“Not having a target savings goal can lead to insufficient savings,” she suggested.

6. Ignoring employer benefits

Several experts — including O’Neill — argue that not taking advantage of benefits and employer match is akin to “leaving money on the table.”

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For instance, this happens when workers fail to take advantage of employer benefits such as the ability to enroll in a tax-deferred retirement savings plan and receive matched savings on their contribution.

This is “free” money that should not be passed up, she said.

7. Family caregiving

Another situation that impedes some Americans from saving for retirement is that they drop out of the labor force (or reduce their work hours) to provide care for children or elderly parents, O’Neill said.

8. Choice of employer

Some people choose to work for small companies with less than 20 employees — and these companies are less likely to offer a retirement savings plan. These employees may be less likely to save for retirement on their own.

9. Lack of emergency savings

Experts recommend saving for an emergency fund, one which should amount to three to six months of living expenses.

“When people lack an emergency fund, they may withdraw funds from a retirement savings account to pay for things like car repairs or vet bills for a pet,” said O’Neill.

10. Lifestyle inflation

Finally, lifestyle inflation can also hinder savings.

“When some people get raises, promotions, or better-paying jobs, they increase their spending proportionately instead of saving money for retirement,” she said.

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