The Habit for Financial Success: Your Road to Retirement

by MSE Staff | Published 9 Aug 2021 (Updated 2 Nov 2021)

The IRS’s 2018 data for Individual Retirement Arrangement (IRA) plan contributions reveals a major gap in wealth accumulation. Although 77.3% of taxpayers were eligible to make contributions to their IRA plan(s), only 8.7% of eligible taxpayers contributed to their IRA plan(s) in tax year 2018. It’s clear that people are not actively investing in their retirement. Three barriers to active IRA plan contribution include unplanned expenses, credit card debt, and needing money for basic monthly expenses (1). People are not investing in their future due to a lack of financial stability and economic security. These are two challenges that financial education specializes in. Learning financial behaviors that create financial stability and economic security add up to your financial success.

Retirement Contributions by the Numbers

A closer look shows that 161,266,301 out of 208,537,968 taxpayers were eligible to make IRA contributions in tax year 2018. Shockingly, only 8.7% of eligible taxpayers made contributions to their IRA for tax year 2018. Women were less likely to invest in their retirement except for those who filed jointly by 0.5%; in which case, 12.1% of those eligible made contributions to their IRA plan(s). 11.5% of eligible men who filed jointly made contributions to their IRA plan(s). The impact of financial instability and lack of economic security is far reaching.

Those with a higher Adjusted Gross Income (AGI) were more likely to contribute to their IRA plan(s) in 2018. The difference was so vast that 10% of those eligible in the 50^th to 75^th percentile contributed to their IRA plan(s) while 26.6% of those in the 99^th and above percentile contributed to their IRA plan(s). It’s clear that financial stability and economic security are the key to increasing the likelihood to investing in your retirement.

On average 10.8% of eligible taxpayers between the ages of 25 and 65 contributed to their IRA plan(s) in 2018. Contributions were significantly lower for all other age groups. This is also an economically productive time for most adults. However, an average of 10.8% participation among eligible taxpayers between the ages of 25 and 65 is a cause for concern.

Obstacles to Retirement

Schwab Retirement Plan Services released a study in 2019 that highlights the top obstacles preventing 401(k) account holders from contributing to their IRA plan along with top sources of financial stress. The survey of 401(k) participants in the U.S. was conducted by Logica Research on behalf of Schwab Retirement Plan Services. The biggest obstacles included unplanned expenses, credit card debt, and needing money for basic monthly expenses. The biggest sources of financial stress were having enough money for retirement, paying off credit card debt, and having enough cash flow each month (1). No matter how you slice it, financial stability and economic security are a big obstacle to retirement.

Achieving Financial Success

Learning behaviors that create financial security and economic stability are essential to achieving financial success. Financial education focuses on getting you to take action. Only 8.7% of eligible taxpayers were able to take action and contribute to their retirement in 2018. I think we can do better. I teach people how to manage their money so that they can build wealth. If you’ve been experiencing the symptoms of financial instability and lack of economic security, chances are that you haven’t been consistently investing in your retirement. There is a path forward for you to have financial stability and economic security so that you can build wealth.

I’ve found that Money Smart Transformation works well for people who have careers and Money Smart Pivot supports entrepreneurs in their journey. Both programs include financial education, implementation and mentor forum to guide you from financial recovery to building generational wealth. Money Smart Pivot includes private mentoring sessions where you can focus on topics unique to your business. No matter where you’re starting from, Money Smart Transformation and Money Smart Pivot can meet your needs for achieving financial success. Schedule a discovery call to learn if one of these programs is right for you.

References

1. Schwab Retirement Plan Services. 401(k) Participants' Investing Behavior May Leave Them Short. Schwab. [Online] 2019. https://www.aboutschwab.com/schwab-401k-participant-study-2019.