5 Real Reasons You Won't Reach Financial Independence

We are not perfect, and those imperfections often manifest themselves in our finances. But never fall for the illusion that wealth is wholly dependent on your character and behavior.

To explain what I mean, let me ask: Have you met the Welfare Queen?

She is irresponsible and shameless, engaging in behavior counter-productive to financial self-reliance. She is a fraudster, gaming the system any way she can to receive tax-payer money and never work a day in her life. She is everything wrong about government largesse.

You've never met her and never will. She is not real. She is the fictionalized version of an exaggerated incident. The Welfare Queen is a subversive trope, famously used by Ronald Reagan during his presidential campaign to criticize welfare programs. Do some people take advantage of federal programs? Absolutely. But it is disingenuous to portray some infractions as the norm.

Caricatures, like the Welfare Queen, are a way to tell a simple, clear story. They are also a way to charge the emotions of a desired group of people.

At their best, caricatures can help people easily understand complex topics. At their worst, they can advance harmful, racist ideologies. At their not worst but not good either, they can purposefully exclude important variables and create false impressions. As it is in personal finance.

Self-anointed financial gurus like to rail against their own trope: the hapless saver who will never achieve financial independence because of unaddressed character flaws and financially irresponsible behavior. It's almost a form of wealth shaming. The reason, they say, so many people don't save enough for retirement is personal choices. Coincidentally, the solution for improving your behavior and growing rich is to buy their books, sign up for their courses and dish out loads of money to attend their conferences.

But that's not the real story any more than the Welfare Queen is. Maybe this caricature needs a royal name, too. How about the Wealth Jester? The person who is susceptible to foolish financial gestures that puts their future in jeopardy.

The truth is there are a variety of factors at play when it comes to building wealth. Certainly, personal decisions and habits make a difference. We, however, are also faced with forces that are far beyond our control. To think otherwise is to wrongfully fall for the Wealth Jester narrative.

Here are five bigger reasons people are unable to achieve financial independence.

1. Don't earn enough money

How is it all your fault if wages are set so low you can't save?

The ugly reality is that many people simply do not earn enough to become financially independent. Once the bare necessities are covered, there is little left over.

Less than 40% of American households have the means to cover an unexpected $1,000 expense -- much less build a nest egg.

This is a structural issue, not just a result of being unambitious or unqualified.

The gravest example is the financial lives of people of color. Workers of color are paid significantly less than white workers, which contributes to a wide wealth disparity among race demographics. Data from the Federal Reserve's 2019 Survey of Consumer Finances show the median wealth gap between white and Black households is $164,100!

Further, younger generations are the most educated in history. Yet only half of millennials earn more their parents did at the same age.

The reason is not avocado toast and daily coffeeshop purchases. No wonder the predominant advice today is to hustle, hustle, hustle. For a lot of people, it's the only way to make enough.

2. Lack of access to a retirement plan

How is it all your fault if employers don't provide a retirement plan to save and invest?

Once upon a time, some workers could expect to tough out the 9-to-5 for a few decades before riding off into the sunset with a pension. Today, the private pension is on its deathbed with only 17% of workplaces offering one, according to the U.S. Bureau of Labor Statistics (BLS).

Unfortunately, the much heralded 401(k) hasn't filled the gap entirely, as 46% of workers lack access to a defined-contribution plan and 32% of workers lack access to any type of retirement plan.

A paper from the Center for Retirement Research at Boston College identifies the lack of access to retirement plans as one of the primary reasons retirement account balances fall far short of their potential.

Given the opportunity and incentives to invest, more people likely would. As the New York Times reported, a study of Oklahoma's program that provided college savings accounts to newborns found that "families that had been given accounts were more college-focused and contributed more of their own money than those that hadn’t been. And the effects are strongest among low-income families."

3. Medical reasons

How is it all your fault if you suffer from an accident, illness or the inevitable effects of old age?

Severe medical issues present a multi-faceted threat to your financial life. One study attributed more than 66% of bankruptcies to medical reasons, as people struggle to pay high medical costs and/or lose time working.

A debilitating health event, such as cancer or a car accident, can lead to exorbitant medical costs and the eventual need to drain bank accounts and retirement accounts and/or sell your assets.

Further, JP Morgan's Guide to Retirement shows health problems are one of the primary reasons people leave the workforce earlier than planned, which means missing out on years of additional income and savings, plus the early draw down of retirement accounts. In other words, technically retirement, but perhaps not truly financially independent or even comfortable.

4. Job loss

How is it all your fault that many companies see workers as expendable as single-use plastic?

Speaking of older adults leaving the workforce early, the top reason is job loss.

A survey from Allianz Life found that more than 50% of Americans are forced out of the workforce earlier than they planned. Unanticipated job loss was the leading reason, followed by health issues.

For older adults, job loss can derail their retirement plans. At this point, they are most likely in their peak earning years, which can greatly pad their savings, and leaving a company early often means receiving reduced retirement benefits.

Should anyone at any age lose a job without a sizeable emergency fund, it can be a devastating setback. And should you struggle to find gainful employment for a long period of time, it is difficult to recover. Especially if you need to resort to making withdrawals from a retirement account, which results in potential tax penalties and lost time compounding.

5. Educational challenges

How is it all your fault if you are raised in a poor school district or struggle to pay for the inflated costs of higher education?

Education can be a major determinant in your financial success. Generally, the more education you receive, the more you earn and less likely you'll suffer from unemployment.

Based on BLS data, bachelor’s degree holders earn an average annual salary of $64,896. That is $26,104 more than the average worker with only a high school diploma ($38, 792). Over the course of a 40-year career, this equates to more than $1,000,000 in additional income. Further, their unemployment rate is 2.2%, which is nearly half the unemployment rate of high school graduates.

If you are raised in a poverty-stricken city with a terrible school district, the chances of attending an institution of higher education and receiving all its financial advantages are slim.

Even if you are fortunate to attend university, it often comes with a hefty bill for that framed piece of paper. The average student loan debt is more than $30,000, an amount that will take some people 10-20 years to pay off. A 2019 survey from New York Life found the average participant reported taking 18.5 years to pay off their student loans.

Wealth takes time. So, financially speaking, many young adults start two, three, 30,000 steps back from the starting line to financial independence.

What does this all mean on a personal level?

Some people struggle financially because of personal mistakes. Some people struggle financially because of real systemic issues that are not within their power to transform. I'd say most people are challenged with a mix of both.

Many of the reasons we accomplish something are because of forces beyond control -- the luck of being born in the right place, meeting the right people, avoiding untimely hardships. It follows that those forces also contribute to when we fail.

This isn't an argument for discounting personal responsibility. In fact, it's the opposite. The reasons listed above are ever more reason to take responsibility for the things you can control, such as building an emergency fund, avoiding debt, saving and investing as soon as your financial circumstances allow.

Just ignore the false caricatures drawn by those who benefit from people believing every financial setback is their own fault. Recognize challenges exist beyond simple money steps like budgeting. And, finally, feel grateful for every break -- large and small -- in life.

When it comes to the large external forces of wealth: Some of us are lucky to start on top of the mountain, or even stand on the flatland of a plateau, while many find themselves looking up from the base of a tall hill or from the depths of a canyon, and others are tasked with running up against the strong pull of a downward escalator.

That's for real.