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Monday, October 24, 2016

Can't Save? Think Again.

Probably the number one excuse for not saving for retirement is that people need every single penny of their paycheck. Most of us have been there and done that. This isn't just at the lower end of the economic spectrum but admittedly is most prevalent there. At least that's the most frequent response I get from people. The "I can barely make ends meet as it is, how am I supposed to make contributions to a 401(k) or an IRA " is a frequent refrain.

But the fact of the matter is people are already saving. It is forced saving. Out of every paycheck 7.65% is deducted for Social Security and Medicare. Think about this. If this was a choice I would be willing to make a sizable bet that many people would opt out and take the 7.65% each paycheck. Clearly this would exacerbate the retirement crisis that is building in this country. Sadly, many people have to be coerced into doing what is good for them.

To hammer home the idea imagine the task of trying to find people, especially as you move down the economic spectrum who don't welcome with open arms their monthly Social Security payment.

As you think about this you realize that this retirement payment is made through the years as you pay off your student debt, take on a house mortgage, have medical problems, have car payments, consider college for the kids etc. In other words, through all the usual excuses for putting thinking about retirement on the back burner.

An important corollary to all of this is that saving is more important than market returns in building a retirement nest egg, especially in the beginning. But many people use the uncertainty of the capital markets as an excuse to shy away. Know this: saving dominates. In fact, as is widely stated savers who are building a nest egg should cheer a negative stock market which gives them an opportunity to buy in at more attractive prices.

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