3 main reasons why workers aren’t saving for retirement | personal financing

Here are three of the most common reasons respondents gave for not saving for retirement right now, along with some strategies you can use to get around them.

Lack of money was the biggest reason most people said they couldn’t save for retirement. Nearly 37% of survey respondents said they don’t earn enough money, while 26% said they don’t have a job at all. Understandably, this is a huge hurdle, but there may be ways to fix the situation.

First, you’ll need some kind of work. If you don’t already have one, find employers who are hiring. Whenever possible, see if you can find one that offers retirement benefits, such as a 401(k) with a matching contribution. If the job does not offer a retirement account, you may have to open an IRA yourself to save for retirement.

If you have a job but need all of your income to cover your basic bills, it may be time to consider a career change. You can also start a side hustle. You can decide what you do and how much you work. But some side businesses have upfront or ongoing costs, and you need to decide if it’s worth it for you.

One in five workers surveyed said they felt too young to start saving for retirement. This is a common and dangerous misconception. Retirement may be decades away from you, but it will creep up on you faster than you might expect. And the longer you wait, the more difficult your task becomes.

Let’s say your goal is to save $1 million by the time you turn 65, and you expect to earn 7% of your average annual rate of return. If you start saving at 25, you’ll only need to save about $403 per month. If you’re one year late, you’ll have to save an extra $30 a month to meet your goal. And if you wait until 35 to start saving, you’ll need to save $851 per month. Over the course of your working life, delaying savings for 10 years will cost you approximately $113,000.

This is because the longer you wait, the less time your investment should grow before you need to withdraw funds. As a result, you will need to contribute more of your own money to achieve your goal. But when you start early, you will have more investment earnings to help you. So, if you can save for retirement, don’t let age stop you. Start saving right away.

About a fifth of survey respondents said they did not save for retirement because they were prioritizing other investments. The survey did not clarify what these other investments were. Some people will likely choose to save in a taxable brokerage account rather than a retirement account, so they can access their money at any age. Usually, you can’t withdraw money from retirement accounts without a penalty until you reach age 59 1/2.

There is nothing wrong with investing outside of a retirement account, but if you don’t plan to use the money for the foreseeable future, a retirement account is probably the best option. They offer unique tax benefits that taxable brokerage accounts do not.

Tax-deferred retirement accounts, such as 401(k)s and traditional IRAs, give you a tax break this year. If you earn $40,000 this year and put $4,000 into a traditional IRA, the government only taxes you on the remaining $36,000. But you will pay taxes on your withdrawals later.

Roth accounts give you tax credits when you retire. You pay taxes on your contributions in the year you pay them off, but then you don’t have to pay taxes on your withdrawals in retirement. This is usually the best way to go if you think you will be in the same or higher tax bracket once you retire.

No one will make you save for retirement if you choose not to. But it’s usually best to make it a habit if you are able to do so. If you put off saving for too long or contribute money infrequently, you risk retiring without enough.

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