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How to Counter the Top 5 Excuses People Are Using to Explain Why They’re Not Saving Right Now for Their Own Retirement

How to Counter the Top 5 Excuses People Are Using to Explain Why They’re Not Saving Right Now for Their Own Retirement
April 16
00:05 2019

Well, another tax year has come and gone. How many people have missed yet another opportunity to improve the odds they will retire in comfort? It’s too easy to make excuses. We make them about our diet (“What’s just one more donut?”). We make them about our fitness (“I’ll get those steps in next hour!”). We even make them about our household chores (“The grasser won’t grow that much higher in a day.”). The most distant the goal, the more likely we’re willing to rationalize our procrastination.

This is especially true with retirement savings. That sometimes decades-long gap between where we are today and where we’ll be when we’re handed the gold watch diminishes the importance of acting right now. People find themselves standing at the plate without bothering to take a swing at the pitch. What’s the best way to counter this? Here are the top 5 excuses people are using right now to rationalize why they don’t need to save for their own retirement. Better still, here are the best way to counter those excuses.

#1: It’s Not Important Right Now
Out of sight, out of mind. In the flurry of day to day busy-ness, the distant future simply seems unimportant. They see other goals – nearer-term goals – that may appear much larger than they actually are. This is a form of the behavioral anomaly known as “recency” – overweighting the significance of something only because its nearer to your mind.

“I’ve been hearing a lot of procrastination,” says Donna Gestl, Senior Vice President at The Prosperity Consulting Group in Owings Mills, Maryland. “People say they want to save, and even understand the importance of saving, but don’t plan to do so until they have reached some other financial milestone. For example, maybe they plan to start saving after paying off their student loans, or buying a house, or paying for a wedding.”

Truth be told, this excuse is an old one. And the reason behind it might be classified as one of the “usual” suspects. “In many ways, it’s the same now as it’s been across all time periods,” say Bill and Andy Bush, the 401k Brothers at Horizon Retirement Plans, a division of Horizon Financial Group in Baton Rouge, Louisiana.” “And, we think it’s because they don’t see the importance of it, and they overextend their budget.”

Counter:
Clearly, the best way to overcome this recency effect is to bring what is distant much closer. “It helps to paint the picture of one’s ‘future-self’,” say the Bush brothers. “How are you going to make it on SSN alone? What could be less than 40% of your pre-retirement income? What will your life be like living off of that? If that’s not a pretty picture, it’s probably not too late to change it. It involves changes in habits and mindset, to give your 70- and 75-year-old self the same priority that you are giving your current self. The future he or she will look back and thank you for the changes you made now.”

The tried-and-true method is to provide concrete – yet credible – examples. “Starting early can give you a considerable leg up when it comes to long-term saving,” says Gestl. “The money you invest now benefits from compound growth and it builds on itself over time. For example, if an individual retires at 65 and invests $1,000 a year starting at age 40, he or she will have roughly $50,000 in his investment account at retirement age, assuming a 5% annual return. If that same individual started a 25, he or she would have approximately $126,000 also assuming a 5% annual return. Again, contribute what you can, as early as you can. Individuals can start with 1% of pay and then increase their contribution by a little every year, or every few years.”

#2: Budgeting is Too Hard
As Bill and Andy Bush allude to, the first excuse leads immediately to this second Top 5 excuse. If mowing the lawn is a chore, budgeting is a workout, now more than ever. “Right now, especially among millennials, people are facing a different retirement than the generations before,” says Justin Bailey, Co-Founder and Chief Technical Officer at Vimvest in Sarasota, Florida. “Stagnant wages and increasing expenses are placing more pressure on those who are just starting or settling into their careers. Additionally, younger workers are more likely to be burdened by student loans, and workers with student loans have less to stash in retirement plans and are more likely to end up at risk in retirement.

Counter:
There’s no two ways about it. Budgeting is a disciplined regime. “That’s tough,” say the Bushes. “It goes back to education and coaching. Basic budgeting, to show how even small amounts of sacrifice and savings now, can be a benefit in the future.”

The good news is you don’t have to bite off more than you can chew. “Start small, and start by setting goals,” says Bailey. “Planning out your financial journey is beneficial to your success. Start by thinking about your major financial goals, such as an emergency fund, paying off student loans, purchasing a home, and retirement. These goals take time and consistency to build, but in the end. you’ll be happy you put the time in. Focus on solidifying your emergency fund first, then focus on simultaneously clearing out debt and preparing for retirement. If you’re unsure just how much you’ll need for retirement, think about what retirement means to you. Some people actually increase their spending during retirement by splurging on trips, purchasing second vehicles, remodeling homes, or by incurring unexpected expenses.”

The calculus of the pre-retirement budget comes down to the simple zero-sum formula of savings and spending. “Making any decision about saving vs. spending starts with a budget,” says Cindy Wilson, financial consultant director at TIAA institutional financial services in Los Angeles, California. “If you don’t have one, you need one. To understand your spending patterns, track everything that goes into your bank account and everything that goes out for a few months. This can be a great exercise for identifying ways to boost your savings. You may want to make different lifestyle choices, like living with a roommate or going out less frequently. The good news is that saving even a very small amount for retirement each month can have a huge impact down the road. While budgeting, don’t forget that an emergency savings account is critical to your financial well-being. Don’t feel pressured to set aside large sums at a time. Making small contributions on a regular basis can get you where you need to be.”

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Excuse #3: The News is Too Scary
And by “news” we’re really talking about the market. “Some people are apprehensive about investing for retirement right now because we have seen some volatility in the market in the last quarter of 2018, so this creates fear that this may not be a good time to invest,” says Denise Nostrom, Founder and Owner/Diversified Financial Solutions in Medford, New York.

This is another example of recency. In fact, “news” is the very definition of recency. And its scariness offers a convenient out when people are looking for reason to explain why they haven’t saved for retirement. “Today, most site uncertainly in the market,” says Michael Osteen, Founder & Chief Investment Strategist, Port Wren Capital, LLC, Beaufort, South Carolina. “Be it the ups and downs in the market, the trade talks, the bull market being too long, or that a bear market is coming, etc.”

When asked what he hears with the greatest frequency on this question, T. Eric Reich, President of Reich Asset Management, LLC in Marmora, New Jersey, says, “The current most common answers are ‘The market is too high’ and ‘Trump scares me.’”

Counter:
Sometimes the best defense is a good offense. In this case, maybe it’s a good idea to confirm their fears – by revealing those fears have always been present. “The S&P has been at a record high 1057 times since 1957! It’s supposed to be at an all-time high!” says Reich. “Yes, markets go up and down, but they have always trended higher. Therefore, you should expect to be at or near an all-time high most of the time. Second, Trump scares everyone – it isn’t just you – but that said, so have a lot of other Presidents. Most notably, the market/pundits/etc. all hated Reagan and yet looking back they all rave about his Presidency. Not saying that will ever happen regarding Trump but just highlights that the President should not be viewed as overly important in the grand scheme of things as it relates to markets.”

As before, this plays into the same formula financial professionals have always relied on. “Fund your retirement account regardless of what is happening in the headlines today. There will always be some uncertainly in the market,” says Osteen. “Your retirement account requires a much longer-term view. Over the long-term these uncertainties will be minor in nature. Especially compared to waiting too late to fund their retirement.”

It actually goes one better than “minor.” Volatility offers a chance to buy stocks when they’re “on sale.” The point is to begin by dipping your toe into the shallow end, regardless of anything else. “Everyone needs to put some money aside for retirement, so there is never a good time or bad time,” says Nostrom. “It is just important to get started. Depending on how long it is until you are looking to retire, you will be investing for many years. So, current volatility should not be a reason not to start. Actually, volatility creates opportunity, so just do it.”

Excuse #4: I Need to Pay Off My Debt First
This is merely a very specific variation of the first two excuses. For a number of very good reasons, it’s among the most prevalent today. Scott A. Stevens, a Financial Advisor with California Wealth Transitions in San Diego, California, says, “The most popular reason being cited right now is that wage earners are either trying to survive without accumulating debt or trying to pay off debt before they want to start saving for retirement.”

Debt acts as an overbearing onus. It causes its victims to sacrifice many things, including their future comfort. “Saving for retirement when you are burdened by debt can be very challenging,” says Wilson. “You may wonder whether you should pay off all your debt first, focus on retirement savings solely, or do both at once.

Counter:
Alas, isn’t this easier said than done? Many might believe that, but it’s not necessarily the case. There are a series of small steps you can take to reduce the burden of debt. “First, take a look at all options to reduce the interest rate on your debt,” says Wilson. “Then, prioritize paying debt at high rates (over 10 percent). Next, if you have debt at reasonable rates, try to balance paying that down, while at the same time, saving at least a small amount each month for retirement. That small contribution will remind you to increase over time, rather than build up more debt. Ideally, you will be able to take steps that support your financial security both in the near term and the long term.”

Stevens identifies several useful strategies for tacking debt. “I would suggest a combination of my recommendation above on setting a budget and paying yourself first along with a designed plan to pay off debt,” he says. “That plan could be any number of popular plans currently in use. The Avalanche method (pay minimum on all revolving debt and make largest possible monthly payment on debt with highest interest rate), The Snowball method (pay minimum on all revolving debt and make largest possible monthly payment on debt with lowest interest rate), personal loan (to consolidate debt into one rate and one monthly payment), cash out re-fi on primary residence.”

Excuse #5: Eat, Drink, and Be Merry for Tomorrow We Will Die
This one is a golden oldie. You might recall its baby boomer incarnation of the 1980s with the infamous bumper sticker (today we’d call it a “meme”) “Whoever dies with the most toys, wins!” Generation studies expert Chuck Underwood cites many similarities between baby boomers and millennials. This might be one of them.

Heather Atkins of Libertas Wealth Management Group in Columbus, Ohio, works mainly with millennials. She can attest to this. She says the “most popular reason for not saving for retirement right now is “wanting to use the money today on experiences because tomorrow is never promised.”

It’s not just millennials, though. Gen-Xers, as they enter their prime earning years, can find themselves ensnared in this bewitching trap. “The most often reason people don’t save enough for retirement is that they get caught in a compound lifestyle inflation situation,” says Michael Tanney, managing director of New York City-based Wanderlust Wealth Management. “For every dollar more they earn, they spend the extra dollar on an increased lifestyle.

Counter:
The problem needs to be reframed from an “either/or” dichotomy to something similar to a “win-win” scenario. “My suggestion is to still have those experiences but also putting money away for retirement at the same time,” says Atkins. “In most cases it is definitely feasible to have an emergency savings account, a travel fund, and a retirement account. Just allocate your resources a little at a time to each of those buckets.”

Tanney concurs. “I tell my clients all the time, with an increase in compensation, you deserve to enjoy through a better lifestyle,” he says. “The problem occurs when the earn-to-spend ratio is 1:1. The most financially successful people I work with allow their lifestyles to increase by a set percent less than the equivalent increase in compensation. The difference is put away for future/retirement needs. Thus, enhancing your current lifestyle and loading up on your future money needs. Hopefully, you continue to make more, continue to live better, and continue to put more away for your future self. Life is guaranteed to throw you a curve ball, make sure you’re prepared, even though you don’t know when the pitch will be thrown or whether you’ll have the opportunity to swing at it.”

There are any number of excuses people can use to avoid saving for their own retirement right now. Don’t let them. Get those folks to cite the reason for their procrastination, then aggressively challenge them. It may take a few swings of the bat, but you’ll eventually help them hit those excuses out of their lives – and give them a better chance to retire in comfort!

Christopher Carosa is a keynote speaker, journalist, and the author of  401(k) Fiduciary SolutionsHey! What’s My Number? How to Improve the Odds You Will Retire in Comfort, From Cradle to Retirement: The Child IRA, and several other books on innovative retirement solutions, practical business tips, and the history of the wonderful Western New York region. Follow him on TwitterFacebook, and LinkedIn.

Mr. Carosa is available for keynote speaking engagements, especially in venues located in the Northeast, MidAtantic and Midwestern regions of the United States and in the Toronto region of Canada.

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Christopher Carosa, CTFA

Christopher Carosa, CTFA

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