Why Aren’t You Paying Yourself First?

Why Aren’t You Paying Yourself First?

If you aren’t saving very much for retirement, you probably have a number of reasons. However, preparing financially for your future is so important that there really are no good reasons not to save for retirement. Here are a few common reasons and why they aren’t reasonable.

Reason #1: I’ll save once I pay for my other financial needs and goals.

When retirement is a long way off, it may be hard to put money toward it if there are bills to pay and shorter term goals to achieve. You may have every intention of saving for retirement once you pay off the mortgage and help your kids with their college expenses. But by the time you’re ready to save for retirement, you may not have enough time to accumulate the money you’ll need to fund your desired lifestyle. By waiting, you will have missed out on years of contributions and potential compounded growth. Consider treating savings for retirement as a budget item, and fund it by “paying yourself first.”

Reason #2: I’m not saving because I’m afraid my investment losses will wipe out my efforts.

The stock market is volatile. That said, it provides an opportunity to produce the highest long-term returns. As a long-term investor, you probably have time to make up any short-term losses. Additionally, savings vehicles such as your company 401(k) plan allow you to make regular contributions over time – this allows you to benefit from dollar-cost averaging.1 Since you invest the same amount on a regular basis, your contribution will buy more investment shares when prices are lower.  Plus, you can minimize the volatility of your investments by diversifying2 your portfolio.

Reason #3: Social Security will provide the bulk of my retirement income.

Social Security’s future is uncertain and it’s always possible that changes may be made to the program. In 2014, the estimated average monthly benefit of all retired workers is $1,294 – $15,528 a year.3 It’s likely you’ll need more than that to maintain your current lifestyle. Consider Social Security just one potential source of income.

Reason #4: I don’t need to save much because I’m going to work during my retirement years.

No one can predict the future. Illness, disability, caring for a loved one, or a layoff could prevent you from working as long as you want. If one of those situations occurs and you haven’t saved, your financial security would be at risk. Even if you plan on working during your later years, you should still save as much as possible for retirement, just in case.

The bottom line is that it is your responsibility to fund your desired retirement. Although any prudent long-term investment strategy involves a degree of risk, it is necessary in order to keep pace with inflation and ensure that funds are available when you are no longer willing or able to work. By contributing regularly to a tax-advantaged savings vehicle, such as a 401(k), you are significantly increasing your chances of being able to retire comfortably and on your own terms.


1Dollar-cost averaging will not guarantee a profit or protect you from loss in declining markets. For this investment method to be effective, an investor has to continue buying regardless of fluctuating prices. You should consider your ability to continue buying through periods of low prices.

2Diversification does not ensure a profit or protect against losses in a declining market.

3Fact Sheet, Social Security Administration, 2014 Social Security Changes

Disclosure: This publication is provided for informational purposes only and is not intended to provide specific investment or planning advice.

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