Why Saving Money For Retirement Is Harder Than Ever

According to the global advisory and analytics firm Gallup, only 59% of polled Americans own retirement plans like 401(k)s, 403(b)s, and IRAs, despite the importance of saving money for retirement. The highest percentages of those with retirement savings are higher household incomes (83% of those earning at least $100,000), college graduates (81%), and adults 50 to 64 years old (70%).

Many others face challenges putting away money for retirement because it's now much harder to do so. From college education being much more expensive to the continued increase in living costs, these are just some of the most common reasons.

In this guide, we'll explore these challenges in more detail and share insights into what you can do to combat them, so read on.

The Modern Challenges of Saving Money for Retirement

CNBC's August 2024 Your Money retirement survey, conducted through SurveyMonkey, reported that over eight in ten American workers say that, compared to their parents' generation, achieving a comfortable retirement is either "much harder" or "somewhat harder." The poll even found that over a fifth of retirees don't have any retirement savings. Four in ten U.S. workers also admitted to being behind on planning and saving for retirement.

Why is that the case, though?

Skyrocketing College Costs

Obtaining higher education, whether in a public or private school, costs much more now than before.

Private ranked colleges' average tuition fee for the 2024 to 2025 school year has risen by 5.5% over the last year according to U.S. News and World Report. At ranked public schools, in-state students face a 2.2% increase, while out-of-state learners can expect to pay 2.4% more. The average cost of tuition and fees in an in-state private institution has climbed to $43,505, while it's $11,011 for in-state public colleges and $24,513 for out-of-state students.

The rising costs of getting a degree affect Americans' ability to save for retirement because it cuts into their income. They have less money to put into their retirement savings plans.

Another way is by forcing some students or parents to take on student loans. Such loans make higher education even more expensive, as they come with interest payments.

Worse, soaring education costs have made some Americans forego college altogether. Since a degree often leads to higher earnings, those without one may earn less, impacting their ability to save for retirement.

Soaring Living Costs

As Consumer Affairs reported, today's consumers have a purchasing power 63% higher than in 1973. Despite that, the cost of necessities, including education and housing, has gone through the roof. Compared to 1973, home prices have risen by around 1,045%, while tuition fees at public and private schools have soared by 177% and 158%, respectively, since the '70s.

The increase in the cost of goods and services leads to higher expenditures. Higher-cost expenses equate to less disposable income. All these can then result in Americans having less, if any, to put aside into their retirement savings accounts.

Hyperbolic Discounting

Hyperbolic discounting, an economics-related term, is a behavioural phenomenon in which a person feels more inclined to choose immediate rewards over those that come later, even if the immediate rewards are smaller. It's one of the reasons people start saving money for retirement later.

Here's an example of hyperbolic discounting at work.

Anna is still in college or her early 20s. At her young age, retirement seems so far off, give or take 40+ years away.

If Anna's thought process is like that, she'll likely think she has plenty of time before she needs to start preparing for retirement. She may instead treat herself to things she can immediately enjoy instead of putting her money into a retirement savings plan or investments like stocks, bonds, mutual funds, or exchange-traded funds (ETFs)⁠.

Tips for Overcoming Retirement Savings Challenges

Since life costs more than it used to, it would undoubtedly cost even more in the future, which is why the earlier you start planning for retirement, the better and the more likely you'll be able to live in comfort in your golden years. Here are some tips to help you achieve this goal and overcome the obstacles of saving for your future.

Plan Within Your Means

The first step to saving for retirement is planning within your means or working with what you have. You can determine a more sustainable living standard by basing your retirement savings computations on calculated benefits and assets, not the lifestyle you want to have.

You should also take a closer look at your current expenditures. When you track your outgoings, you'll have a clearer idea of your spending habits, and you'll be able to determine if you're spending too much on "immediate rewards." If you are, consider cutting back on these expenses and allocating the money you spend on them (or a portion of it) into your retirement savings plan.

Maximize Benefit Matches

Also called "employer matches," benefit matches are a crucial component of retirement savings plans that can help maximize an employee's savings. With this feature, employers match a portion of their employees' contribution to the plan, up to a specific limit.

You should aim to get all of the available matching dollars your company provides to maximize your retirement savings.

Save Even More

Aside from your employee retirement program, you should also put money into a separate savings account. How much you should allocate depends on how old you are.

According to Investopedia, research recommends that people who start saving money for retirement at age 25 allot 15% of their annual income to their retirement savings. Individuals who begin later should save more.

Start Saving Money for Retirement Early

While saving money for retirement is getting harder due to factors like soaring college and living costs, it's still achievable. Ideally, you should start planning and saving as early as you can; if possible, while you're still in college or your early 20s. The sooner you put your money into a savings account and make wise investment decisions, the bigger your nest egg will be once you retire.

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