December 17, 2021

Some people intend to work until they die. Everybody else had better be preparing for retirement.

Unfortunately, many American households aren’t saving enough. Depending on how you slice the data, the average household might have as little as a few thousand dollars set aside. That’s not nearly enough to provide a secure retirement.

Recently I saw a proposal, put out by the Biden campaign, to change some of the rules around retirement savings. They propose new incentives for employers to create retirement accounts for all employees, and new tax credits to incentivize people to save. In general, I’m comfortable with nudges like this that help people make better choices.

But tinkering with the tax laws isn’t going to solve the problem here. In my view, a key problem is that many people aren’t financially literate or not disciplined with how they manage their money. This is a vital life skill that all Americans should have.

Seemingly small financial decisions today can have a major impact years later. For example, the compounding growth of investment means that somebody who gets serious about saving has a chance to build a solid nest egg.

Now is a great time to be saving and investing. It’s not that this moment is special. It’s always a good time to save and invest, and start building your net worth.

Government can help educate people, create safe options for investing, and even provide nudges to encourage saving. But in the end, everybody has to make their own choices between spending today and investing for tomorrow. I fear that many are making short term choices that’ll have long term negative consequences.

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