America Has A Retirement Savings Problem

It is clear that we have a savings problem in America.  Not just a problem, but a full blown financial epidemic.  I am continually shocked by how low retirement savings rank on people’s priority lists.  As a CFO, I can see how much is being diverted from paychecks into retirement accounts and it stinks.  Even with the highly compensated employees, the savings rate is quite poor.  I would like to provide some statistics, but that is just not possible for competitive and privacy reasons.

While the chart below refers to an individual’s savings rate by age group, I think it is safe to safe that retirement savings would be included.  I can’t help but think what this would look like if everyone waited to buy a car until they were a few years into their career (or better yet drive a reliable used car for a long time).  I, of course, have mentioned my own mistake in that area previously.  Part of my mission with this blog is to try and convince people to think twice about those decisions, before it is too late.

I recently read a great article on Blonde on a Budget that highlighted what the high profile financial experts push as an acceptable retirement savings rate.  I was saving that well before I had the goal of early retirement and anyone that has a company match or is eligible for the federal savings credit, should be able to reach that threshold with very little lifestyle adjustment.  I also saw on Yahoo! Finance that 20% of car loans are subprime loans.  That is quite scary and it helps to contribute to the savings problem.  Can you imagine paying a 10% or higher rate on a car loan right now?

After consuming all of that information in short amount of time, it made me think about my savings journey and how much it has changed over the last 16 years or so (since graduating college).

My Retirement Savings Over Time

Here is my own personal estimate of my savings rate over time (sometimes grouped by multiple years so it is not really as steep as it appears).

There are a couple of things to note here:

  • There is a clear correlation between my income and my savings rate. I don’t know if I got wiser of suffered from less lifestyle inflation than others.  It’s probably some of both!
  • My first job out of college was so close to a dream job at an investment bank making double or triple what most new grads would make. Instead I ended up taking an internship at a Casino.  During those 6 months I had no retirement savings to speak of.
  • I ended up being promoted/hired to be a supervisor at the casino in a very short time (less than 6 months). I still didn’t focus on savings, so I estimated that I was at 2%, but I think that was high and I know I didn’t roll over any pension or 401k (I think I cashed it out).
  • At age 24 I went to work at a large commercial loan servicing company as a Senior Accountant (misleading title, but I quickly made an impact with excel skills and quick thinking around problem solving).
  • By the time I was a supervisor, I paid much more attention to the 401k program. In fact, we got the match each paycheck in company stock.  I would reallocate it to mutual funds as quickly as possible.
  • At age 30, I was promoted to a comfortable leadership position with a great bonus. This was around the time that I finally bought a house, or the rate would have jumped more quickly.
  • Once I relocated to California as a Regional Finance Manager (same role, different region) I received a major salary adjustment that was partially a cost of living difference and partially a raise. It was at that point that I started to contribute to a Roth IRA consistently.
  • Moving to healthcare brought a reduction in bonus (I should say elimination actually), but a considerably higher pension and 403b match (slightly more than tripled to 10%)
  • It also corresponds with the first child, which got me thinking about saving more for the future.
  • Although I list the current at 40%, it does fluctuate a bit between 35-45%. I am automating the last of the accounts to get it more consistent to close out 2014 and start 2015.
  • In 2014, the company added a 457b program. I did not jump on it right away, but have filled out the paperwork to start first thing in 2015.  This would be in addition to maxing out the 403b each year.
  • I am officially signed up to max out the 403b and contribute another 6% to the 457b plan starting today!

Summing It All Up

It turns out that the saying ‘with age comes wisdom’ might actually be true.  At least ‘with age comes a better savings mentality’ might be a true statement.  I am embarrassed to admit that as a finance/accounting expert it took me so long to gravitate to the concept of early retirement and financial independence.  It was probably more about shifting my priorities over time from have fun in my 20’s, to career focused, to family focused.

They say have no regrets, but I certainly regret not saving more early on in my career.  The time to compound was valuable, even if the contributions would not have been that much compared to today.  I am still up in the air if using an old 401k for a down payment was a good idea or not.  It has turned into quite a bit of equity, but I still should have found another way to buy that first foreclosure.

Finally, I think it is worth noting that despite all the information out there about starting early the truth might be that you really can wait a few years to get serious about retirement savings.  I make over 400% more than I did as a revenue audit supervisor 6 months out of college.  I would have obviously benefited from saving a higher percentage back then.  However, I think if I would have increased it significantly at age 30 (when I became a manager) instead, I would be much further along than I am now.  An astute reader would say both changes make the most sense and I agree.

What do your savings rate graph look like?  Is it similar to mine?