Wonder Why 401(k) Participants Are Not Saving Enough? They Don’t Have the Money

Former SEC Chairwoman Mary Schapiro and former Treasury Secretary Tim Geithner

Willie Sutton, the infamous bank robber, said he robbed banks because that was where banks kept the money. He was correct.

The bailout did not help everyone like it was supposed to. Former Treasury Secretary Henry Paulson
The bailout did not help everyone like it was supposed to. Former Treasury Secretary Henry Paulson

Today, 401(k) educators, financial planners and benefits administrators freely complain that participants are not saving enough because they are not disciplined enough. They are wrong.

The answer to why workers don’t save enough is because they are spending their paychecks to live. Wages and benefits combined have not increased since 2007, around the time of the start of the most recent recession, and this is true for all civilians. Based on a new report, between 2007 and 2014 the median worker’s wages and compensation declined, respectively, by 4% and 2%.

As this chart from the Economic Policy Institute shows, the growth of both hourly compensation (all wages and benefits, but excluding payroll taxes) and wages (straight-time wages, plus shift pay and other wage premiums) from 2007 to 2014 for all civilian workers.

Stagnant pay and benefits. Economic Policy Institute
Stagnant pay and benefits 2007-2014, displayed by deciles.  Source: Economic Policy Institute

The authors’ analysis “confirms that there has been very broad-based stagnant pay whether one examines just wages or a more comprehensive compensation measure that also incorporates changes in health, pension, and other benefits. The bottom 80% of workers had stagnant or declining hourly compensation, while the bottom 88% of workers had stagnant or declining wages.”


Lack of Money is the Major Cause of Stress

Given the widespread lack of upward mobility in America, it should come as no surprise that money is cited as being the major cause of stress for the majority of Americans.  A study by the American Psychological Association of 3,000 adults found that three-quarters were stressed about money some of the time; 26% were constantly worrying about their lack of money. For the majority of Americans (64%), money is a somewhat or very significant source of stress, but especially for parents and younger adults (77% of parents, 75% of millennials [18 to 35 years old] and 76% of Gen Xers [36 to 49 years old]).

Higher stress about money meant more people were foregoing health exams and medical treatments.  . The study found that 20% of Americans have either considered skipping (9%) or skipped (12%) doctor visits, due to financial concerns. Financial stress also impacts relationships: About 33% of adults with partners (31%) said money is a major source of inter-personal conflict.

So if you are working with 401(k) participants and other workers planning for retirement, get a reality check on their situation about why they are not saving enough and why they are stressed.

U.S. savings rate
U.S. real incomes since 1994-2010

Even worse, if the upcoming election allows Republicans to privatize Social Security and Medicare, increase taxes on the middle class or push to cut workplace benefits, retirement planning will replace economics as the 21st Century’s dismal science. It will also make the next recession much worse than the one in 2008.


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