What's the worst barrier to a comfortable retirement? You, me, us.
We're spendaholics who live powerless to rein in our spending. Few of us are taught to save as kids, so it never becomes an innate habit, said Nathan Dungan, founder of ShareSaveSpend, a Minneapolis-based program that teaches families about money strategies.
"We have enormous pressures to spend rather than save," Dungan said. "Spending will always be sexier than saving."
We start our adult work lives in a pattern of paying the monthly bills first — rent or mortgage, food, utilities and transportation — and saying anything left over we'll squirrel away in savings. But something new or unexpected always comes along to squash the savings bug in its pupal stage — the hot water heater leaks, the transmission goes out, Ethan needs braces.
Then five or 10 years go by and savings are meager or nonexistent. Nearly all Americans must have laughed or heaved a woeful sigh at recent reports that even $1 million in savings at retirement isn't going to be enough. Most of us won't even have 5 percent of that amount.
That's why saving for retirement or a rainy day ought to be mandatory or at least automatic. Some of you are thinking that we already have that — Social Security. True enough. Each of us and our employers pay 6.2 percent of salaries up to $116,000. The average monthly check in 2013 was $1,296, according to the Social Security Administration.
But some employers are taking things one step further. Several years ago they were given the OK by the government to automatically enroll employees in the 401(k), usually deducting 3 percent from their paycheck. One big caveat? Employees can opt out at any time.
Jean Chatzky, a personal finance expert and the founder of Jean Chatzky's Money School, thinks the auto-enrollment is a good start for a 401(k). "But there should be auto-escalating so people are contributing more than 3 percent of their income," she said. Experts recommend saving between 15 and 20 percent.
Only about 15 percent of employees choose to opt out, according to Aon Hewitt, a consulting firm that works with employer retirement accounts.
You might think that's proof that people save when pushed. But, without that push, most people aren't that interested in retirement planning. According to a survey by TIAA-CREF, Americans spend more time choosing a special-occasion restaurant, flat-screen TV or a tablet than a retirement investment.
Of course, investing is complicated and potentially humiliating. Now that pensions are almost a memory, employers put the responsibility on us by providing scores of investment choices in a 401(k) with little or no guidance to choose funds.
The answer isn't to avoid saving or investing just because it's a challenge. Employers and mutual fund companies have made it a no-brainer by offering target date funds, said Gail MarksJarvis, author of "Saving for Retirement (Without Living Like a Pauper or Winning the Lottery)." She recommends that people choose a target date fund appropriate for their age or a balanced fund (a fund with 60 percent invested in stocks and 40 percent in bonds). "With these types of investments you don't need to be afraid," she said.
How can savers automate? Ask your employer about nonretirement automatic deductions from a paycheck to start an emergency fund or a down payment for a home. "A lot of employers allow one or two other auto payments. When a person doesn't see it, they don't spend it," said Nate Wenner, a certified financial planner at Wipfli Hewins Investment Advisors in Edina. Consumers can also ask a bank, credit union or brokerage house to deduct an amount from your checking account every month.
Even some credit or debit card companies are encouraging people to save by allowing them to opt into programs to "round up" a purchase amount in $5 or $10 increments. The remainder goes into a savings account.
No matter the savings amount, we need to be shocked into the reality of saving. Wenner uses an instant aging tool on the Internet to help people literally see what they will look like in 20 years. "I have to put that future in their present," he said. "People who say they will work until they die may not realize that they could be laid off or too tired or sick to work."
For those Americans who claim they can't save, a new report by Interest.com has good news/bad news.
The good news is that typical household in the Twin Cities has the capacity to save nearly $9,000 a year. That assumes a median after-tax household income of $62,134 and median expenditures of $53,256.
The bad news? The median savings rate in the Twin Cities is zero (more than half of the region's households aren't saving anything). But they can't place the blame on the high cost of housing, transportation or food, according to the survey. The fault lies, as Shakespeare wrote, in ourselves.
The sooner that we realize that the best way to save is to automate it, the less we'll have to worry about Social Security or its future.
John Ewoldt • 612-673-7633
