Most people aren’t saving enough for retirement. Some aren’t saving anything at all. Many are not starting early enough. Most of those who are commendably saving something aren’t putting enough away or not choosing the optimal financial vehicles.

It’s a puzzling situation, given that we’re the wealthiest country in the world.  Low-income people understandably have the toughest time saving (though some somehow manage to), but many people who have higher-than-average incomes also struggle to put anything aside. 

As a result, many Americans don’t have the financial resources they need when they retire. According to an Employee Benefit Research Institute (EBRI) survey of retirees unveiled in November, 31% said they’re spending more than they can afford. IRAs were a current income source for 20% of respondents, while 401(k) and similar workplace retirement plans were an income source for just 17%.

It’s just the latest of many studies showing that our retirement savings are lagging, which is especially concerning since Social Security benefits may not be quite as ample in the future.

Why aren’t people saving, and what can you do to save and get the best after-tax return?  It’s a big societal problem without easy answers, but here are some thoughts.

Too much debt saps savings

US household debt totaled $17.7 trillion in early 2024, according to the Federal Reserve. This includes debt for student loans, credit cards, mortgages, car loans, and personal loans. Mortgages usually carry low interest rates, and homeownership helps you build wealth.  But excessive debt, especially on credit cards, which usually levy very high rates, can make it difficult or impossible to save anything.

Ideally, you should have no credit-card debt when you’re retired.  In 2024, 68% of retirees reported having credit-card debt, compared with 40% in 2022 and 43% in 2020, according to the EBRI.

Some people run up credit-card debt buying necessities, and the cost of the basics of life, like food and housing, has increased markedly over the last few years even though inflation is currently lower.

To make matters worse, most credit cards carry very high rates: 20.42% on average, making it hard to pay off debt.  However, there are still low- or no-interest cards available.

Not having a budget can be risky

Many people are not disciplined about discretionary spending.  Because of credit cards and the web, it’s easier and more tempting to spend money on things you may not need and can’t afford or pay for without using credit.

Advertisers bombard us every waking hour telling us, in effect, buy this now, and you’ll be happier!  It’s hard to resist.  And once you sign up for a recurring cost, such as a streaming service you may not use much, it’s easy to ignore the expense.

If you’re the sort of person who’s cautious about money and isn’t tempted to overspend, you may not need a budget.  But most people do.  A budget can help you counteract the marketing-driven urge to spend beyond your means.  It will help you take a deep breath and say no thanks before you plunk down your credit card on a whim.  Or buy a big expensive car or truck when a more modest vehicle would suit your needs.

There are lots of model budgets and tips online.  One method is found here, but there are many others.  The point of any budget is to introduce discipline and predictability.  Experts recommend paying yourself first and automatically sending a portion of your paycheck to savings—even if it’s a very small amount.

Annuities offer a good way to boost savings, especially for people in their 50s or older

Once you’ve started saving and have built up an emergency fund, then you can start looking at ways to make your money grow over the long term.  Employer-provided qualified retirement plans, including 401(k), 457, and 403(b) plans, are the place to start because of their big tax advantages.  However, some employers don’t offer them.  Self-employed people can set up their own tax-advantaged retirement plan.

All your savings and investments outside of a qualified plan or an IRA or Roth IRA are considered nonqualified money.  This means that any income it produces is taxable, with a few exceptions: most notably municipal bonds and annuities.  Annuities are tax-deferred, and you won’t pay any tax as long as the interest is reinvested in the annuity.

Tax deferral is powerful.  For instance, if you’re earning 4% on a bank certificate of deposit and are in the 25% combined federal and state income tax bracket, you’ll earn just 3% after taxes.  Over 10, 20, or more years, having one-fourth of your money unavailable for compounding will mean a lot less money in your account.

Except for variable annuities, which may carry limited guarantees, other types of annuities are fully guaranteed by the issuing insurance company.  (Choose a financially strong insurer.)  The major caution about buying annuities is that withdrawals of interest before age 59½ are subject to a 10% IRS penalty plus ordinary income tax.

Early withdrawals beyond the penalty-free amounts allowed by the contract will also result in a surrender charge from the insurer.  That’s why they’re considered most appropriate for people in the 50s and beyond.

One type of annuity, the multi-year guarantee annuity, or MYGA, acts much like a bank certificate of deposit, with a set guaranteed rate for a term, but adds tax deferral in a nonqualified account.  MYGA rates are attractive now and you can get up to 5.55% on a five-year product or 5.35% for a three-year guarantee as of early December 2024.

The smallest amount you need (minimum premium) to get started varies widely, but a few MYGAs require just $1,000, putting them within reach of people with modest savings.  This type of annuity usually provides some penalty-free withdrawals, especially after the first year, so there’s most often some unpenalized liquidity. 

The fixed index annuity offers an interesting but more complex way to boost your retirement savings and also provides tax deferral.  It offers both growth potential and complete protection from any downside volatility in the stock or bond markets.  The minimum premium is $5,000 or more.

Your own private pension

Income annuities offer a different route to retirement security.  Instead of building the value of your savings, they provide a guaranteed monthly income, which can be for life (the most popular option) or a certain number of years.  In essence, you’re creating a private pension for yourself.

If you’re not retired yet, you may want to choose a deferred income annuity, which will start paying income at a future date you specify.  Retirees who want income now usually choose an immediate annuity instead. 

A single-premium income annuity may require as little as a $10,000 minimum payment, but that’s unusual.  A more typical premium deposit is $100,000 plus. 

If you’re having a hard time reducing credit-card debt and putting money aside for retirement—no matter what you’re income level—take a hard look at your income and spending. Making even small sacrifices today can pay big dividends in the future, especially if you take advantage of tax deferral. 

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Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at https://www.annuityadvantage.com or by calling (800) 239-0356.