Blog | Personal Finance

Why Saving Won’t Save Your Retirement

There is no better time than the present to start changing your financial habits. But if you're  only saving money, it's just the beginning, not the solution.

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The need for more than savings to secure your financial future

One of the reasons I started Rich Woman many years ago was because I was concerned about the financial future of women. As part of the larger mission of The Rich Dad Company, one of the missions of Rich Woman is to set ladies free through the power of financial education and sound personal finance.

Reading the news this week, I’m convinced that the mission of Rich Woman is still as important as ever. Take for instance the story of Vadaire James.

When Vadaire was in her early twenties, her mother sat her down to talk about the importance of saving for retirement, but Vadaire didn’t listen. Today, she is forty years old and has little savings. “It is terrifying,” she told CBS News.

Even more terrifying are the stats that accompany the article about Vadaire. According to a recent survey cited by CBS News:

  • Only about half of women have put aside retirement money compared to 65 percent of men
  • The average retirement savings for men is $76,800
  • The average retirement savings for women is only $34,900

There is nothing freeing about staring down retirement with the fear that you won’t have enough to live on—just as there is no freedom in depending on men for your financial future.

Just say no to bad advice

Only part of the problem, however, is the lack of savings that women have. The other part is the conventional wisdom that is given to women as sound personal finance advice.

The very same article that shares Vadaire’s story also gives this as advice, via Cindy Hounsell, the president of Women’s Institute for a Secure Retirement, to women who don’t want to share her fate:

"You just have to get into the habit of saving because there will never be the perfect, blue-sky day, when today's the day, I can start saving. That never comes along," said Hounsell.

Saving money isn’t the answer

While saving money is certainly better than doing absolutely nothing, it’s still pretty close— especially if you consider that the inflation rate eats into any interest savings you might enjoy . And let’s face it, just about anyone can save money. In fact, saving money is such a poor way to prepare for retirement, we’ve gone ahead and called it a scam ( Rich Dad Scam #5: Save Money).

The reality is that saving money is not the answer to the retirement crisis most women are facing. It may make you feel better, but it won’t fix anything. Worse yet, saving money teaches you nothing about how money actually works. It’s not smart personal finance. It’s just baseline, unoriginal thinking.

Saving for investing is the answer

If you really want security and freedom when it comes to your retirement, you’ll have to do a lot more than just put a little bit away each month into the old bank account and let it sit there.

I’m not against saving money, but it has to be for a purpose. Having it just sit in a bank account ‘till retirement gives so little return that it’s hardly worth doing. It’s nearly impossible to save enough money to have a great retirement. Rather you should save money for the purpose of investing that money for greater returns.

Understanding how to invest money can get your money working for you—and can bump that rate of return from one percent (what a friend’s 4-year old son is getting on his newly minted savings account) to 10, 15, and 20 percent returns or more.

In some cases, Robert and I have made infinite returns on our investments through the power of investing with Other People’s Money (OPM) .

Start today!

Cindy Hounsell’s advice does have one good element to it. She’s right that there is no better time than the present to start changing your financial habits. It’s just that saving money is only the beginning, not the solution.

The good news is that it’s never too late to start expanding your thinking about money and how to put it to work for you. One quick, easy, and free way to get started is to simply join the Rich Dad Community.

When you join, you’ll get a wealth of free resources like e-books and online games, and have opportunities to connect with other women who are passionate about financial freedom. It’s a smart investment in your financial future—and one you can do right now.

Original publish date: March 26, 2015

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