Saving for Retirement Is Harder Than It Should Be

The U.S. government has long offered myriad contrivances and enticements to get Americans to save enough for a comfortable retirement — so far with woefully inadequate results. But why should it be involved at all? Why can’t people be responsible enough to prepare for an entirely foreseeable event?

There are two answers. First, people turn out to be pretty bad at thinking about the distant future: It seems our brains aren’t wired for it. Second, compounding that problem, the financial choices involved are complicated — and thanks to bad policy, needlessly so. Encouraging people to save more for retirement, and helping them do it wisely, would make a lot of Americans much better off.

In recent decades, the U.S. system of retirement saving, such as it is, has shifted sharply toward personal responsibility. Long gone are the days when employers commonly offered guaranteed pension plans to supplement bare-minimum Social Security benefits. Such corporate largesse has given way to defined contribution plans, which — for those lucky enough to have access — place the onus on employees to set aside enough money, choose the right investments, and eventually figure out how to make the savings last.

Retirement is a uniquely difficult thing for people to think about. When they’re young and stand to benefit most from the power of compounded returns, they tend to put off saving — not because they’re irresponsible, but because the future seems very far away or too uncertain, or because they have too little income. And they find the task of managing retirement accounts daunting, with countless potential combinations of contributions and investments. Throughout their working lives, they often fail to take full advantage of employer matching funds — effectively passing up free money.