7 Reasons Americans Can’t Save for Retirement

Workers know they need bigger nest eggs, but find it difficult to save.

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Americans are increasingly making an effort to save for retirement, but they’re finding it difficult to build a significant nest egg. “There are indications that many Americans are trying to meet the challenge of saving for their future,” says Dallas Salisbury, president of the Employee Benefit Research Institute. However, less than half (47 percent) of current workers say they are saving enough to have a desirable standard of living in retirement, according to a new America Saves and American Savings Education Council survey conducted by Opinion Research Corp. Here’s a look at why most workers aren’t on track to retire comfortably.

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Living beyond our means. The first step toward saving for retirement is to spend less than what you earn. But a quarter of workers say they are not saving because they spend all of their income. Most people say they are saving between 1 and 10 percent of their income (47 percent) or more than 10 percent (25 percent).

Little employer help. Only about half (54 percent) of those surveyed save for retirement at work using a 401(k) or other retirement account. Many middle class workers are not gaining pay increases, while they are being asked to increase their health insurance contributions and receiving lower retirement account contributions from their employer, says Stephen Brobeck, executive director of the Consumer Federation of America. “Compared to last year, more Americans are finding it difficult to achieve savings progress.”

Not saving automatically. Even fewer workers (44 percent) save automatically outside of a workplace retirement account by making regular preauthorized transfers from their checking account to a savings or investment account. “Many people find that once they set up an automatic savings plan that puts a small portion of their income directly into a separate account, they never miss it, and the savings helps them build the future they want,” says Nancy Register, director of America Saves.

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Too much debt. It’s even more difficult to save for the future when you are still paying off past purchases. Only about a third (37 percent) of those surveyed are completely debt free. Most Americans are working on reducing their debt (42 percent) or have debt that they are unable to reduce or that is still growing (20 percent). About two-thirds of the survey respondents own property, typically with a mortgage (42 percent). Most people with mortgage debt (75 percent) plan to pay it off before retirement.

Savings isn’t a priority. Many current expenses and debts are prioritized above saving for retirement. Just over half (57 percent) of Americans say they have a specific savings goal. And only 54 percent of those surveyed know their net worth.

No emergency fund. An emergency fund of cash outside your retirement account is essential to avoid dipping into your nest egg—and paying the resulting taxes and fees—when you experience a sudden large expense. However, 30 percent of those surveyed say they don’t have sufficient emergency savings to pay for unexpected expenses such as car repairs or a doctor visit. “You don’t have to make a lot of money to have the ability to save,” says James McIntire, Washington's State Treasurer. “Saving $5 each and every week over time can help provide the financial security needed for the future.”

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Spending windfalls. About half of Americans say they sometimes receive financial windfalls, including tax refunds, gifts, and bonuses. Most people who receive a cash windfall (39 percent) save at least part of it, but 10 percent generally spend it all. Catherine Smith, CEO of ING U.S. Retirement Services, says workers should save the 2 percent reduction in Social Security taxes in 2011 for retirement. “We’re encouraging employees to give themselves a retirement raise by saving this extra income in their retirement plan,” she says. “Even a 1 or 2 percent increase can help grow your savings account significantly over time.”

Twitter: @aiming2retire