Americans' low savings rate, in general & for retirement

[Turnover]

A relative who dodged Social Security payments told me it was one of the stupidest decisions he ever made. He was part of the Greatest Generation that paid for their parents' Social Security (OASI originally) back then when the system worked, but wasn't totally solvent by todays funding standards. He later did quite well but it was by very hard work, luck in the stock market and the general economic circumstances of the time.

Those general circumstances grew out of the Great Depression and the War which drew our economically divided country together. It changed the former division between the rich and poor to the point where a good education was available and affordable to most and work paid a living wage. Now we are back to the old divisions where the economy sputters and small businesses die out for lack of customers with a little extra cash. I don't see it getting any better soon. Folks don't even have the money to pay taxes to keep the schools and roads up and easily buy the propaganda that nothing works so don't bother ....

I am modestly fortunate. I worked years without raises, but put in a portion of my pay into state retirement although it wasn't matched as promised. We were in deep debt but we used the Dave Ramsey snowball method to liquidate it. Had decent jobs so we were able to recover ourselves. Yes, live beneath your means. Yes, save cash but consider putting it into a least I Bonds so it is inflation protected. Don't buy gold or penny stocks - this worked for my relative, but remember he was a B-24 crew member and LUCK had a very, very tight grip on him. So between, being out of debt, having some modestly growing savings, Social Security, a paid off home, and luck (not dumb luck) you may make it in this world until the economy is realigned so it again works for most of us.

 

[Pipcecil]

Most of the people I work with make between $30,000 and $40,000 per year. Most of them are in their 30's and 40's. And most of them still live paycheck to paycheck with no savings. They also tend to live in rent-houses or apartments. They have no credit. Many are divorced. I have been curious as to how they are going to survive when they reach retirement age.

But then there are people at the other extreme. Those who live in almost poverty because they save nearly everything they make. This makes no sense to me either as there is no guarantee I'll live long enough to enjoy the savings. But I like the comment somebody else made about why delay all of your gratification for the last 10-20 years of your life?

I try to take a more balanced approach. We actually live somewhat frugally. We could probably afford a larger house and cable TV, etc... But we don't. In fact, about the only indulgence we have is our cars (Volt + Leaf) and even those are minor considering our lease payments and the money saved on fuel.

Totally agree with that. I save, but I don't beat myself to a pulp to put money away and still enjoy what I would consider a comfortable life without going overboard. My favorite example was when we bought a house right around the market crash. The banks, being as opptomistc as possible, said we qualified for a $225,000 house. I laughed so hard I think the bank person thought I was crazy. I knew my finances and there was absolutely no way I could afford that...the house we bought was only $130,000 and I still conisder that at the higher edge of our affordability at the time. Live smart, but still enjoy life

 

[cadyshack]

Longtime lurker chiming in on this interesting topic, I've found it informative to compare the savings issues for Americans with other industrialized countries-- I hop all over the world for consulting these days so I've been able to get a good sense of how very unlike the rest of the developed world the USA has become in regard to savings habits, spending and pacing of work. IMHO one very difficult issue for Americans compared to elsewhere is how much the US economy in general depends on debt and debt spending, and how much "retirement" in the US is regarded as a clean break from an exhausting slog, vs the more measured approaches elsewhere. In the functioning countries in Europe and East Asia (plus a couple places in South America), people in general seem to have much more security and far less debt than in the US or Britain, and the political systems seem to be more populist and less special interest oriented than in the US. I think this may be why so many Americans have been moving there in recent years.

For example in the productive core of Europe (mostly central-Europe and Scandinavia), debt is strongly discouraged for practically every sector of activity. Americans (plus British these days increasingly) don't only load up on debt for luxury goods but also for basic necessities and career investment, e.g. for health care and medical bills (a big reason for credit card debt), child-care, housing (the regions with jobs also frequently have wildly inflated prices for renters and buyers alike) and of course, for student debt-- with $1.2 trillion in student loans and counting, I have no idea how the Millennials could even contemplate retiring.

Whereas in, say, Switzerland, Sweden, Holland, France or especially Germany, about 100% of students, even those who do grad or med school, finish 100% debt-free, and even people who suffer things like severe illness or divorce, which will often bankrupt people in the United States, take on very little if any debt in central-Europe or the Nordic countries. Child-care and housing are also kept manageable-- both banks and citizens abhor the idea of house price inflation and so don't even consider house buying until they have massive savings built up, thus keeping house costs down. People routinely have 4, 5 or even 6 weeks of vacation which they use to keep their minds and bodies fresh, and in general employers don't have an adversarial relationship with workers like in the US, so people are in general more satisfied in their careers and feel less need to cut loose and retire. Yet this doesn't hinder productivity, for example Germany has around the world's biggest trade surplus and the second biggest exporter (ahead of the USA and behind only China), despite having about 1/4 the US population and something like 1/15 of China's!

And as I learned to my own shock when I worked in central-Europe-- the common belief of the "low-tax" United States compared to these countries is a myth. Sure, the top-line rate in much of Europe is higher, but places like Germany and even Sweden and Finland don't have anywhere near the complicated layers of taxes like in the USA. When I got my business going while still doing my day-job in the United States, there were so many different taxes I could barely keep count-- not just federal income and SSRI but also state and local, property, sales, franchise, excise, about a half dozen different business registration fees, vehicle fees, hundreds of obscure moving and parking laws to get extra revenue from motorists and parked cars (that's a tax, too), AND I had to pay health care costs (crazy premiums and deductibles), child-care and school fees for our kids on top of that. Plus there were hideous accountant and lawyer fees to help handle the mountain of paperwork, AND even with all that, my partners and I still lived in fear of making an honest mistake-- revenue collections and courts in the US are unbelievably punitive for even a minor mistake in navigating this process. I very nearly gave up the business in the early going. Whereas in Scandinavia and central-Europe, the taxes are much simpler and there aren't so many of them, if you make an honest mistake it's not nearly so punitive (more cooperation to resolve any issues without the insane fees and penalties like in the US), many places (e.g. much of Norway, Belgium, Denmark) don't have a property tax at all, and you don't pay anything like a franchise tax until your business is actually thriving-- and you also don't have to worry about all the ridiculous fees, health care or school fees. (France can be more troublesome though IMHO no more so than the US when all the taxes and fees are tallied up.) You also don't go broke with accounting and legal fees in those countries simply because, with simpler laws (and also lawyers not facing a mountain of their own student debt), there's less need for lawyers and $300-800/hour consult fees in general. You'll find similar advantages in much of East Asia, as well as in places like Uruguay in South America, or even parts of Brazil, Chile, Argentina or Ecuador, though that can take some research.

So this probably has a lot to do with why Americans have such dismally low savings compared to the rest of the world (though Britain, Canada and Australia to some extent are dealing with the same problem probably from following the US model). The US system is designed to keep people perpetually in debt for all kinds of things, and even very careful thrifty people can wind up deep in debt for all sorts of reasons because the system's structured that way. And most of this was in place well before the current explosion in US student loan debt. Also work environments in the US can be backbreaking compared to like Holland, Germany or Scandinavia, where workers and even unions have seats on the corporate boards, and companies tend to invest more in their workforce.

One has to adapt all this to personal circumstances of course, but IMHO there's more security and freedom in a lot of places overseas and the financial burdens are less crazy and uncertain. I see more and more Americans emigrating abroad to those countries every year, and I suspect this has also has a lot to do with that.

 

[smkettner]

And yet I read close to 10,000 per day for the next 20 years are retiring or leaving the workforce.
Should have some job openings soon

 

[jsongster]

we should not be raising the social security age because well-to-do lawyers and bankers are living longer.
social security is fully-funded through 2035 and will pay 75% of benefits with NO changes.
those who designed it and the fix in 1986 knew all about the changing demographics of more retirees and fewer workers.
eliminate the cap and tax all wages for SS. Tax capital gains as wages for those with AGIs above 250k for a family.
increase taxes at death on all estates above $10 million.

This is the right approach. Eliminate the cap... Increase estate taxes on the ultra rich 10 percent... Fix the system that has helped so many and can easily continue to. The republican government is broken meme is not true and is certainly getting tired. If the Libertarians hate the government so much... go live in Somalia... see what a place is like in a libertarian utopia. As for the republican lies and duplicity... Government always seems to work fine for the wealthy... as Republicans reward them with our tax dollars as "job creator" tax incentives. No profitable company should get these breaks. Exxon's profits consist mostly of the gifts and largesse of the american government. Wanna get rid of the leeches of government end the corporate welfare. Fix the Social Security. Increase it. Take education and health care away from the corporate criminals. Take the food stamp program away from the MorganaStanlyChaseBank crooks. Fix the great society don't destroy it.