Why Save for Retirement, Anyway?

In the U.S., we have a retirement savings crisis. Most start later than they should and don’t save at the appropriate rate to build their retirement savings to the level they need. Depending on your generation, your start age has changed so that average has started earlier and earlier for each generation. Now Gen Z is starting at age 20, while the Boomer generation began on average at age 35, saving for retirement. The earlier you start saving for retirement, the easier it is for you to accumulate assets for retirement. But there are still several out there asking, “Why save for retirement in the first place?”

During the working careers of the Greatest Generation, pension plans and defined benefits plans were what employers offered. You would work for an employer for your whole career and then retire from the company, and the company would continue to pay you based on your years of service and your ending pay. But during the Boomer generation, the 401(k) and 403(b) became the replacement for those pension plans for many different reasons we won’t go into here. These 401(k) and 403(b) plans are defined contribution plans, meaning that the employee and/or employer puts the money into an account as the employee is working. At the end of their employment, the account pays the employee rather than the company.

The most significant disadvantage of these defined contribution accounts is that the employee has to choose to start the account. Even with auto enrollment and auto escalation on employer retirement accounts still, the employee has the option to opt-out.

So, why should you save? Several reasons:

  1. Social security will not be enough to maintain your current lifestyle. Effective Jan. 1, 2022, the Federal benefit rate is $841 for an individual and $1,261 for a couple. (This is the Maximum Federal SSI benefit.) Or $10,092 for an individual per year and $15,132 for a couple. For a household of two, the poverty guidelines for 2021 were $17,420 for the 48 contiguous states and the District of Columbia (Alaska and Hawaii are higher).
  2. The Power of Compounding Interest. When funds are invested, then they are taking advantage of compounding interest. The more time your funds have to be invested, the more significant the compounding interest will have on your overall savings.
  3. Tax Savings. Retirement accounts allow you to take advantage of tax-deferred savings. It will enable you to reduce the taxes you owe on your income for the year it was invested. By reducing the taxable amount of your income, you can invest those dollars, which also earn tax-deferred. Retirement accounts like 401(k) and 403(b) offer annual contribution limits of $20,500 for 2022, along with an “over 50” catch-up contribution limit of $6,500.
  4. Remain independent. The biggest fear for many of us is outliving our resources. With the average retirement lasting somewhere between 20 and 30 years, many of us want to make sure we are able to enjoy and be independent during that time. Since our working careers can stretch 30 to 40 years with us being compensated by an employer, the 20 to 30 years in retirement will need to be compensated by ourselves.
  5. Peace of mind. When we have savings and retirement set up and growing, it provides us with a sense of security. That security affects our future and our mental well-being when it comes to finances. By having funds set aside for your future self allows your current self the freedom to worry less about “what if” scenarios that keep many up at night.

The list could go on, but I will end with this. God has called each of us into a ministry. Whether it is full-time in a ministry profession or in construction, we are all called to minister to the people around us. When we retire, that calling does not go away. It only changes. Retirement is a different ministry, but we need to prep for it in advance. The opportunities we have in retirement will need funding in order for us to fulfill them.

Some of us may want to work until we die, but we are not guaranteed someone will pay us until we do. So having a retirement set up in order to ensure we are paid allows us to continue working at what we are called to do.