1 Chart That Shows Why Americans Are Failing at Retirement

By Sean Williams Markets Fool.com


Image source: Getty Images.

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The United States is arguably the greatest country on Earth. It has the highest GDP, the strongest military, and even the biggest oil reserve deposits in the world. The U.S. is even looked up to by developed and emerging markets for guidance during times of economic instability.

Americans are setting a bad example

However, there's one thing Americans are absolutely terrible at: saving money. According to a more than 7,000-person survey from GoBankingRates in September, a whopping 69% didn't even have $1,000 in their savings account, including 34% with $0. By comparison, less than 1 in 5 have more than $5,000 in their savings account.

Of course, what's in your savings account only determines whether or not you have the capital to cover an emergency. Retirement preparedness is an entirely different story, albeit the statistics are just as grim. According to a recently released survey from Get Rich Slowly, which was commissioned by Experian, 71% of Americans said they didn't have enough retirement savings, with more than half of those surveyed (54%) suggesting that they would never fully pay off their debts.

Just how bad are things in the savings department for American households? The following chart of the U.S. household personal saving rate, released monthly by the St. Louis Federal Reserve, perfectly sums up why Americans are failing at retirement.

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Image source: Federal Reserve Bank of St. Louis. Gray areas represent periods of recession.

As you can see from the chart, increases in the personal saving rate only seems to occur when there's a recession and a motivation to save. Over the past 50 years, the personal saving rate has been more than halved to 5.5% as of Nov. 2016 from 11.7% in Nov. 1966. Comparatively, citizens in most developed countries sock away around 10% of their income, which falls right into the wheelhouse of what most financial advisors in the U.S. would suggest (saving 10% to 15% of your income).

If there is a small bright side here, it's that at least the personal saving rate is off of its July 2005 record low of 1.9%, but not by very much.

Why Americans are struggling to save

You might be wondering why consumers are struggling to put away money for retirement. According to the aforementioned GoBankingRates survey, which interviewed certified financial planner Michael Hardy, two factors were attributed.

First, Hardy blamed a lack of saving to consumers' spend-first mentality. Hardy admits that many people are living beyond their means, which negates any chance they have of saving for retirement.

Secondly, Hardy blames an increasing number of cashless options, such as credit cards and mobile payment options, for reducing consumers' understanding of the value of a dollar. Without handing over physical cash for goods and services, there's no tangible recognition of the value the consumer is giving up when buying something. This last point is a particularly troubling problem with more senior homeowners carrying mortgage debt past their 65th birthday, and 49% of all persons surveyed by Get Rich Slowly admitting to carrying credit card debt.


Image source: Getty Images.

However, at the heart of both problems is a simple solution. According to a 2013 Gallup survey, just 32% of American households were keeping a detailed monthly budget. This implies that 68% of households -- an eerily similar number to the 69% in the GoBankingRates survey who have less than $1,000 saved, and the 71% in the Get Rich Slowly survey who haven't saved enough for retirement -- don't have a good enough understanding of their cash flow to make smart saving decisions. Without a budget, it's pretty much impossible to adjust your spending and saving habits to reach your retirement goal.

How to create the perfect budget

Possibly the best news I can give those of you who've neglected a household budget is that it's easier than ever to create one. Most people can create a budget online for free using software. What's more, online budgeting tools can even help you formulate your saving plan based on the saving figure you'd like to hit each month.

On the flipside, the hardest component to budgeting is your own resolve. It's easy to be sidetracked when you're trying to save, which is why employing a few tricks could come in handy.

To begin with, ensure that everyone under your roof is abiding by a personal budget or a household budget. This goes for children, grandparents, and roommates. If you surround yourself with like-minded people who share your goal of saving money in order to have a comfortable retirement, you'll be more likely to stick to your own budget. If you live alone, consider meeting with a finance group once or twice monthly, or even a financial advisor perhaps more often than once or twice a year, to assess your progress and keep you motivated.


Image source: Getty Images.

One tool that can be especially useful is "SMART" budgeting tactics. This acronym stands for:

  • Specific
  • Measurable
  • Achievable
  • Realistic
  • Time-based

In other words, you want to create budgeting goals that are as specific as possible so you have a way to accurately measure whether you're staying on track. If your budgeting goals are too vague, you'll have no way of knowing how well you're doing, and thus won't be able to make the appropriate adjustments, if needed.

Finally, consider using cash to make purchases. Using cash will probably make you think twice about discretionary purchases because you'll have a tangible loss of value from your wallet when handing over your cash.

One more issue to contend with

One final issue worth noting that's also contributing to America's retirement problem is a lack of investment in the stock market.


Image source: Getty Images.

According to Katie Ryan O'Connor, an editor at Get Rich Slowly, 71% of people surveyed weren't invested in the stock market, and 41% had no plans to invest in the stock market anytime soon due to a lack of funds. This is particularly worrisome because the stock market has historically been one of the top creators of real wealth. Whereas CDs and bonds can generate near-guaranteed returns, they can, in some instances, lose relative to inflation. The stock market has historically returned 7% annually, inclusive of dividend reinvestment. In other words, sticking to the sidelines and investing too conservatively could be doing nearly as much damage to Americans' retirement goals as their lack of a household budget.

There's good news here, too, for those of you worried about the risks of investing in individual stocks. The rise of electronic-traded funds, or ETFs, allows you to buy broad-basket funds filled with dozens, hundreds, or thousands of stocks, which can help spread around your risk. Also worth noting, ETF fees can sometimes be lower than that of a mutual fund, and ETFs tend to be far more liquid, meaning you can, if you choose, buy or sell with greater ease.

America's retirement issues can be fixed, but we have to open our eyes and realize what the problem is first before we can take that crucial step forward.

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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has adisclosure policy.