I often have strong feelings about the right and wrong way things should be done. I’m not proud of it. I have to remind myself that there’s a lot of in-between. Also, many people may believe that my “right” is wrong and “wrong” is right.
Whenever I feel this way, I think, “Let’s go… to the numbers!” Even that might be misguided. I may be better thinking, “Let’s go… to the psychology!”
I was recently alerted (via this Motley Fool article) of a NerdWallet survey done at the end of last year. The survey had the title of “Americans Worried About Retirement, Unlikely to Save More Next Year”. Motley Fool took that survey and decided that “Survey Reveals the Majority of Americans Are Saving for Retirement All Wrong.”
On Friday, I explained why another article’s title didn’t match the data or even the article text. I didn’t want to go there again today and it isn’t the point I’m trying to make. However, Motley Fool painted me into a corner by extracting a 2000 person study of people ages 18+ into something that speaks to “the Majority of Americans.”
I certainly wouldn’t want to trust a survey that thinks it’s worthwhile to ask an 18 year old about “retirement readiness.” I imagine that 18-year old might respond, “If you buy me and my friends a case of beer, we’ll talk about retirement with you for a bit.”
The other parts of the survey about top financial concerns and savings priorities are a little more relevant. I’d like to see the “retirement readiness” question moved to a different survey reserved for those 25+, maybe even 30+. For example, Nerdwallet lists a “key finding” of: 43% of millennials ages 18 to 34 are currently not saving for retirement at all.
What I wanted to write about today was this key finding:
“Missed tax advantages”
“Of those who are saving for retirement, 55% report doing so in a regular savings account, compared with 50% who report using a workplace retirement plan like a 401(k) and 39% who are using an individual retirement account like a traditional or Roth IRA.”
That shocked me. Why would such a high percentage of people use regular savings accounts for retirement? (This is what Motley Fool picked up on.)
Aside from very young adults who skew the numbers I came up with 3 reason why this could be the case:
- I immediately jumped to a lack of consumer education. Maybe people don’t know about Roth IRAs and 401ks? Maybe they are too confusing.
- Next, I jumped to laziness. Maybe people perceive it to be too difficult to sign up for a Roth IRA or a 401k? Maybe they just didn’t get around it due to everything else going on in their life.
- Finally, I wondered if the survey itself was giving me the answer. It mentioned that people are concerned about medical bills, lack of an emergency fund, and credit card debt. It’s hard to prioritize putting money in a retirement account when you have those concerns, right?
It’s got to be a combination of those 3 and perhaps a few other things that I haven’t thought of. It would have been good if the survey went a little deeper into the “Why are you saving for retirement in a savings account?” rather than to seemingly stop and point the finger at them.
On the topic of pointing fingers, I started this article coming from the perspective of the Motley Fool analysis of “People are saving for retirement all wrong!” I was going to explain that compound interest is a river and you want it to flow with you. When you factor inflation, a savings account makes you work against the current.
My mind went into “math rage.” (If that’s not a thing it is now!). It might not be that people are saving for retirement all wrong. It might be that they are using the savings account for a few different things. It might also be due to the psychology of not wanting to risk retirement savings in the market. That’s were the psychology argument at the top of the article came into play.
In the end, despite my “math rage”, I have a problem with saying that people are saving for retirement the wrong way without knowing the details. Their “why” is important.