Reasons to not save for retirement

K.I.S.S. Keep it simple smart, is something we don’t do when thinking about retirement. I just received an email from an investment firm that had the topic line “The top ten retirement planning excuses”. I thought I wonder if there were the any of the excuses I used when I was younger.

When I was young I did not think about retirement, I had a company pension so all other thoughts of retirement went out of my head. I may have at one point decided I should supplement my pension by taking advantage of the Registered Retirement Saving Program we have in Canada, so I did. But I was not a steady contributor, nor did I maximize my contributions. If I thought about why I did not contribute or maximize my contributions, I came up with many of the following excuses.

· "I'm too busy "

· "It's too soon "

· "It's too late "

· "I don't need to "

· "I don't have enough money to get started "

· "The Government will take care of me "

· "I don't want to think about it "

· “No access to an employer retirement plan”

· “I don’t have enough knowledge, or I don’t know how”

The above excuses are from the following source, The Retire Wire and if you look online you can find many other lists of why people won’t /cannot/will not save for retirement. The people I know who did not/could not/ plan or save for their retirement are in big trouble. I have several friends and in my workshops, I run across people who had all the right excuses and who are now facing the consequences of indecision.

The frustration I feel is because we know through Behavioral Economics why people do not save and we can help.

There are many reasons why individuals do not always act in their best interests when it comes to saving for retirement. In his book “Misbehaving – The Making of Behavioral Economics,” economist Richard Thaler outlines three reasons why people often fail to save for retirement:

1) inertia or failure to act, which explains why people do not begin to start saving even when they have the opportunity

2) loss aversion, which explains why people avoid taking actions perceived as reducing their paycheck

3) the lack of self-control that contributes to choosing actions that provide immediate gratification rather than planning for the future.

There is much short-term thinking about retirement, many who claim that planning for retirement is an individual responsibility forget that in the long-term society will pay a tremendous price when millions cannot support themselves in retirement. The problem isn’t that people don’t want to save for retirement the problem is that many do not have access to any programs that allow them to do so easily. Today many low- and moderate-income workers, contributing anything toward retirement is difficult because they may have debt and struggle to cover day-to-day living expenses. Not having easy access to a retirement savings program makes it even more difficult to save.

No access to an employer retirement plan excuse

According to the U.S. Government Accountability Office (GAO), 84 percent of the workers who do not participate in workplace retirement savings programs reported that the main reason was not having access to a workplace retirement program, rather than a failure to participate.

It's too soon or its too late excuse

Behavioral Economics talks about time horizons, which is economics speak for how do we see time. Some of us think only of what is going on in our present. For plenty of people, future thinking or planning for the future is thinking about the upcoming weekend or maybe one or two months ahead. According to a study done in 2015, workers of all ages and income levels are present-minded when making financial decisions. This leads them to weigh the present more (“present bias”) than the future and make investment decisions today that reduce their welfare in the future. For example, individuals tend to be more concerned about day-to-day financial needs than their future financial plans. In addition, if the decision is a complex one requiring the evaluation of many alternatives, such as having to choose from a large number of different investment funds offered by their employer as part of a retirement program, inertia takes over and they may simply never take action.

I don’t have enough knowledge, or I don’t know how excuse

A study in 2011 found that many workers were not able to understand the ABCs of finance. Individuals who lack the knowledge of basic financial terms, such as compound interest are much less likely to save for retirement. In the United States, according to the study, many workers do not have a basic financial literacy. The importance of financial literacy has been addressed by the President’s Advisory Council on Financial Literacy: “While the crisis has many causes, it is undeniable that financial illiteracy is one of the root causes … Sadly, far too many Americans do not have the basic financial skills necessary to develop and maintain a budget, to understand credit, to understand investment vehicles, or to take advantage of our banking system. It is essential to provide basic financial education that allows people to better navigate an economic crisis. Without proper knowledge to figure out the numbers, a lack of information, overwhelming information, or information that is difficult to understand could all result in workers over- or under-estimating how much they need to save, to give up on saving, or unknowingly save too little."

How does society overcome our weakness and our inability to plan for our future? While there are solutions, which can be implemented easily, but it does require some political will.

Offer Plans where people work

Research has shown when employees are offered a plan, about 70 percent voluntarily participate which is a solid number, but when workers are automatically enrolled in a plan, with an option to opt-out, participation jumps to about 90 percent.

Keep it Simple, Easy, and Make the Default Automatic. 

Behavioral studies tell us when faced with complex choices people adopt simplifying strategies, which is to take whatever is the simplest path or the easiest option that could be used. This strategy of making the plan compulsory,  with an option to opt out and with increasing contributions, has been tested in a program, named Save More Tomorrow (SMT). An empirical study with 25 companies that administer retirement plans shows the SMT program has a noticeable effect in boosting annual savings.

Keep the message simple

When providing financial and enrollment information, using behavior insights to design the message could make a great difference. In a program to promote retirement security for government agencies, emails redesigned by the Social and Behavioral Science Team (SBST) led 22 percent more people to re-enroll in Thrift Savings Plan (TSP) within a week.

Provide Financial Education Opportunities.

For individuals with limited financial knowledge and primary responsibility for saving and investing, improving financial literacy can make a difference. Many studies and reports have suggested that workplace-based plans and financial education are the most effective to improve financial literacy and thus increase retirement savings. A case study found that “the most financially savvy are also the most likely to participate in and contribute the most to their plan …” and “… employees who completed a financial education module were more likely to start contributing and less likely to have stopped contributing to the DC plan.”

Hide and Seek

Children love to play hide and seek. When you were raising those kids of yours, it was great fun to join them in that game. Another variation on it that lots of us play with the grandkids is “where’s Grandpa?” This is the one where you hide your face and then suddenly show it to a baby just to see that look of surprise and delight when they see Grandpa or Grandma over and over again.

We grow so used to knowing every little thing that goes on with our children. If they have grandchildren, they don’t really appreciate how much you want to see them every day and enjoy every aspect of their lives. But when the kids live in another city or another state, that becomes almost impossible to pull off.

Sure, you knew as far back as when the kids went off to college that you would go through some separation anxiety. But the desire to be more in touch with your family goes a lot deeper than just a dose of empty-nester syndrome. It goes to the very foundation of who you are.

We are by nature family oriented creatures. For many of us, there never was a time when they were not in the middle of a family situation. If you moved directly from the home of your parents into your married family and had children right away, family life was a continuous flow in your life. So, when the time comes for the children to leave, especially if that means they will be in another state, or country the depth that you miss them is tremendous and the deep desire to be more in touch doesn’t diminish with time.

Is the answer to move to the same town or country where the kids are living? Sometimes that is possible. But we know that it’s the nature of young professionals that they may be moving again and again because careers that are being built often call for that kind of commitment. This is less difficult for the kids if their families are young and they are enjoying the adventure of living in different places. But for you as a senior citizen, living in one place, making friends, finding a church or social group and becoming part of a long-lasting community is important to feeling secure as you enjoy your golden years. 

The good news is that we live in at a time when information technology can help you stay more in touch than ever before. There are new ways coming along every day that you can use to reach across spans of hundreds of miles and feel you are part of what is going on with your children and those precious grandkids. Some technologies that can help include…

While these forms of hiding and seek with the kids were fun when they were little, now that they are grown and you are Grandpa or Grandma, there is a form of hiding and seek that isn’t so fun. That is when the children move far away and it gets harder and harder to stay in touch with them.

• The internet. Through email and other modern technologies, you can exchange messages with your children many times in a day.
• Digital cameras. The ability to take pictures has gotten so much more accessible with cameras becoming part of mobile devices, phones and other machines you and your kids may have on you all the time. So, you never have to miss out on a cute photo of what the grandkids did this week.
• Facebook, Skype, FaceTime and Instant messaging. This is the ultimate in staying touch. You can go so far as to put cameras in different parts of the house so the kids can see mom and dad every day and you can watch the children and grandchildren play and talk to them almost like you are there.

Everybody will have to get used to these new tools of communication. But as much as you will be thrilled to see and talk with your kids every day and see them so much more often with these new tools, they will love being able to have some “mom and dad time” with you as well.

Stop trying to keep up with others

As March roles in a springtime thought for you. 

When I was younger for a time chased after the things of life. I thought that was what you were supposed to do, but I was wrong.

It took me a long time to learn that everyone is on a different path. If you keep chasing after the things or the life you think you’re supposed to have just because it seems everyone else does, you’ll lose yourself and not even know what you’re chasing or why you are chasing. 

I learned over time that some things just need time to breathe and grow and it does not matter how slowly you go as long as you continue to breathe, grow and stop to smell the flowers.

Fun Is Different Now

On this last day of February as March roars in like a lion, you may be thinking of summer and spring fun.

You can probably remember being a child when the most important thing in the world was having fun.  Well, there are some remarkable similarities between your retired life and those carefree days of childhood.  For one thing, when you were a child, you didn’t work for a living, you felt secure that you had what you need.  Hopefully, in your retirement you did a good job preparing for retirement so you have some carefree days to enjoy now too.

Another similarity that your children may have pointed out to you is that, like it was when you were a child, you occasionally did things that you were not allowed to do.  But now it seems to be our children would like to be telling us what is ok for us to do or not do.  But every so often, you have to throw caution to the wind and go ahead and party late into the night, go parasailing or go to a rock concert.  It is always fun and usually a great time when you are willing to take a chance.

But fun is different now than it was when you were a child.  Now there is nothing better perhaps than spending a day trying to improve your golf game.  A long rainy afternoon with a good book is just the thing and it will be a day of fun you will remember for a long time because this is what it means to be retired.  Some other ways to have fun that are notably different from childhood or even when you were a working adult might include…

·       A day sorting yarn for a big knitting project or laying out the fabric to make artistic quilts to sell for a charitable cause can also be a day of girl talk, giggling and gossip that seems almost like the sleepover scene from Grease as much as it is a gathering of mature women enjoying the afternoon together.

·       Getting together with the boys and going out to help build a shed gives you the chance to play with tools, mess around with building materials and remember what great fun it is to just build something.

·       A bus tour to Branson or some other exciting nearby attraction takes on a whole new sense of adventure when it’s the big day when they change the lunch menu at the cafeteria downstairs.

·       Going to a high school or college football/or hockey game used to seem like a nuisance when you had to attend to watch your child play third-string centre or your child cheer and hope they don’t break their collarbone.  But now when you get to go, even if you don’t know a soul on either team, being in that exciting setting is the kind of good clean fun you look forward to for weeks and think back on for months.

Just as the fun is different now, so are the toys.  Now, enjoying an afternoon stuffing envelope for the church is as much a fun as a game of playing chess as long as you can do it with your friends and chat and share stores as you play.  Now, going to a military base to look at their archives is more than just mildly interesting.  It’s a trip through your own past and if you can enjoy that with others who served their country so you can honour them.

Yes, we have fun differently now and it is different then young people .  But anyone who thinks for a minute that we never have fun are as far off from the truth as they can be.  Because we have laid down the cares of career and raising children, we can really relax and let the fun of each day sneak up on us.  By putting ourselves in the mindset, that life is still a great adventure, just about anything we do can become a source of joy and fun.  But even though fun is different now, life is still worth living because it is tremendously fun.